We have seen many different financing options for home owners over the years, from traditional mortgages to adjustable-rate (ARMs) and hybrid loans. There are financing packages designed to meet the needs of many different people in various situations.
When deciding on what type of loan to apply for, consider your current needs, future needs and financial situation. If you are currently working with a real estate professional, they can refer you to a mortgage specialist who you can work with. Be sure you’re comfortable with your loan specialist and that you understand your options.
There are different variations of loan programs with most of them falling under three major categories: fixed-rate, adjustable-rate and hybrid loans.
Fixed-rate mortgages carry the same interest rate for the life of the loan or until you refinance. These are typically the most popular choice of loan for home-owners because of the fixed monthly payments. Budget planning is easier and the constant payment amount helps protect against inflation.
Adjustable-rate mortgages (ARMs) are those with interest rates that can change periodically over the life of the loan. The rate amount is tied to an index such as Treasury Securities that may rise or fall over time. ARMS usually have caps that limit the amount of increase, as well as a ceiling to limit how high it can go during the life of the loan. Low introductory rates make this a favorable loan for one that will be short term; buyers usually refinance to get a fixed rate before the ARM adjusts.
Hybrid loans combine the features of both the fixed-rate and the adjustable-rate mortgages. Typically, a hybrid loan starts with a fixed-rate for a certain length of time and then later converts to an adjustable-rate. Be sure to know when the change will occur and how much the increase will be. Be aware that some hybrid loans do not have interest rate caps for the first adjustment period.
Some hybrid loans start with a fixed rate for several years, and then change to another (usually higher) fixed rate for the remainder of the term. Lenders often charge a lower introductory interest rate for hybrid loans than they would on a fixed-rate mortgage. This makes it more attractive to homeowners who anticipate relocating in a few years.
Balloon payment loans are those that have a large, final payment due at the end of the term. For example, one’s payments might be amortized based on a 30-year loan, but the entire balance may be due after 7 years. As with some hybrid loans, this type of mortgage might also be attractive to a homeowner who plans to sell within a few years.
Time Factors in Financing
As discussed above, the type of financing you apply for can be influenced by how long you plan to own the home. If you only plan to be in your home for 5 years or less then one with a low introductory, adjustable interest rate would make sense. When considering an adjustable-rate or hybrid loan, compare the interest rate, the length of time before the 1st adjustment, the amount of increase, and other terms and conditions. If you will be staying 10 years or more then the fixed rate mortgage is the wisest choice.
FHA and VA Loans
US Government loan programs like FHA and VA are designed to help people who might otherwise be unable to qualify for a conventional mortgage. FHA and VA loans have lower qualifying ratios and often require smaller or no down payments. Anyone can apply for FHA loans but VA loans are only available to veterans for their spouses and certain government employees.
Conventional Loans
Conventional loans are simply those offered by a traditional private lender. They can be fixed-rate, adjustable, hybrid or other types. While harder to qualify for, they often require less paper work than the government loan programs. Conventional loans are not usually limited to maximum loan amounts or other restrictions.
Mark Goedert of Goedert Real Estate has been in business for over 50 years, working with first time home buyers, real estate investors and developers. As a long standing business in Michigan, the company has been through many changes as they utilize technology to stay on the leading edge of real estate. Mark Goedert works with first time home buyers in Marshall, Albion, Okemos, Mason, Rockford, Tecumseh, Brighton, Warren, Temperance, Royal Oak, Ypsilanti, Livonia and other cities and communities in South East Michigan
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