What Types of Mortgages Are There?

There are several kinds of mortgage loans to satisfy diverse borrower needs. The type of mortgage that works for you will be dependent on how long you expect to own the home, your down payment funds and what you qualify for.

Fixed-rate mortgages make up the majority of loans originated and work well for long-term home ownership. The interest rate and monthly payments are fixed for the term of the loan. There are 10-, 15-, 20- and 30-year terms.

The adjustable-rate mortgage (ARM) is a flexible loan because the interest rate you pay may go up or down. The initial rate is usually lower than that of a fixed-rate mortgage.

After a period of low fixed monthly payments, the ongoing monthly interest rate will be based on a fixed margin added to a fluctuating cost-of-funds index. Borrowers seek this kind of loan for shorter-term home ownership because of the lower initial rates.

Conventional loans are not offered or secured by any government entity. Banks or mortgage companies usually make these loans with 20% down but will originate the loans with less than 20% down with added mortgage insurance.

FHA, VA and USDA loans are government-guaranteed loans with specific requirements for eligibility and typically have lower interest rates than conventional loans.

A loan can be a closed or open mortgage, depending on if there is a prepayment penalty for early payoff. The closed mortgage bears penalties if paid off or refinanced prior to its term.

Contact me, and together, we can determine which of these loan programs works best for your situation. I am always here to help, and I am just a call or email away.

What You Need to Know about Getting Pre-Approved

Having loan pre-approval from a lender means you are eligible to buy a home or condo in a certain price range.

Get started by compiling your W-2s or 1099s, pay stubs, tax returns, bank statements and monthly expenses. A lender-generated credit report will also be part of your loan package.

A lender will guide you through the steps and show you what kind of loans there are and how the amount of down payment affects what type of loan works best for you.

Your monthly payments and any required mortgage insurance will be influenced by how much you put down. If you know what your loan and associated fees will cost you, you will be better prepared for closing.

Getting pre-approved will help you refine what kind of property best fits your monthly budget. The lender will factor in all the monthly costs of owning a home and see if the debt-to-income ratio qualifies you to buy.

If you are thinking about a condo, be aware that condo association dues will increase your monthly housing debt, possibly making a single-family home more affordable.

Different loan products have different costs, which can affect the amount of total funds you will need to close a sale. Origination fees vary the most and are usually a percentage of the loan amount. Your lender can create different scenarios to see what works best for you.

There are easy-to-understand worksheets for the pre-approval process. Call me for an appointment and we can go over all these steps and prepare you for your next home purchase.