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Home Mortgages

Home Mortgages

Financing your first home can be the most frustrating part of the home buying process. This is the time when you will figure out how to pay for the home. Most people have to take out a mortgage loan in order to afford the price. Which mortgage loans are right for you? How much of a down payment will be necessary? What is escrow?

You will have many questions about financing your first home. By knowing the facts, paying attention to interest rates, and looking into all of your mortgage options, you will be able to choose repayment terms that will fit your current income and allow you to safely make those monthly payments.

Types Of Home Loans

Deciding which home loan is the right one for you will depend on what you qualify for and what your lender is willing to give you. There are a few types of mortgage loans, including:

  • Fixed rate mortgage loans
  • Adjustable rate mortgage loans
  • Balloon mortgages, and
  • Jumbo loans

You should be familiar with these loans so that you will be able to make an informed decision when it comes to financing your new home.

Fixed Rate Mortgage Loans

For first time home buyers who are on a strict budget, choosing a fixed rate mortgage may be the loan for you. Your monthly payment will never change for the life of the loan because you will lock into the interest rate given at the time the loan was processed. You can take out loans that range from ten to thirty years.

There are many advantages to taking out mortgage loans that have fixed rates. You will be able to create a monthly budget for yourself, you will never be surprised by the amount you will have to pay each month, and you will be able to lock into a low interest rate.

The disadvantages may not mean much to you now, but as your family or your income grows, you may want to refinance and pay less each month so that you will be able to afford renovations, vacations, and other luxuries. Since your mortgage is fixed, if interest rates drop, you will be trapped paying a higher rate. While you can refinance your mortgage, you will have to wait a certain amount of time, and even then there may be complications.

For those who have limited income, who have lower credit scores, or those who want the security of paying the same amount each month, then a fixed rate mortgage is the loan for you.

Adjustable Rate Mortgage Loans

If you expect to make more money in the next few years, and want to buy a bigger home, you may be interested in an adjustable rate mortgage. The major difference between an adjustable rate mortgage and a fixed rate mortgage is that the interest rate will vary year to year in an adjustable rate mortgage.

While the interest will be capped, you will still be paying more for each year that you own the home unless interest rates drop over an extended period of time. Most adjustable rate mortgages cannot be raised more than 2 interest points per year, and up to 7 points for the life of the loan.

These loans are good for those who want a larger home and who expect to increase their earning each year to afford the increase. If you are in a position to take out an adjustable rate mortgage, you will be able to lock into a fixed rate that may be lower than your original rate. This is the main advantage of these loans. Most lenders will only give you two years to lock into a rate or the loan will remain adjustable for the life of the loan.

Balloons Mortgages

If you are only planning on living in your first home for a few years (usually five to seven), you should look into a balloon mortgage. These mortgages require that you pay them off in five to seven years. They have a lower interest rate that is fixed.

If after the term of the mortgage has passed and you want to remain in the home, you will have to refinance and choose a fixed rate or adjustable mortgage to pay off the existing mortgage, as balloon mortgages cannot be renewed.

Only consider this mortgage if you are planning on moving after a certain amount of time or if you think you can pay the mortgage off in that amount of time.

Jumbo Loans

Most first time home buyers will not need to take out a jumbo loan unless they are buying a very large home. These loans are valued over $275,000 and are used to purchase land and a home. More collateral will be needed in order to qualify for one of these loans. The interest rates are comparable to fixed and adjustable rate mortgages, and have the same payment terms.

Now that you know about the types of mortgages that are available, you should be thinking about which lender to use. With so many lenders out there, it may be difficult to sort through all of them and find the right one. Doing a little homework will help you get the lowest interest rate possible.

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