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Without some basic preparation, the mortgage aspect of buying Real Estate can appear to be a bewildering and confusing maze. Developing an understanding of the basic types of mortgages that are available will help your focus when it comes time to choose the mortgage that will be most beneficial for you.
Types of Mortgages
Fixed: A fixed term (for example, 15 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage.
Adjustable: Often referred to as an ARM (Adjustable Rate Mortgage). The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The monthly amount for your principal and interest payment will go up or down with these rate changes.
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ADVANTAGES AND DISADVANTAGES OF FIXED AND ARM MORTGAGES
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Advantages--Fixed
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Advantages--ARM
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- Since you know what your payment will be for the life of the loan, you can budget more easily.
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- Lower initial interest rate and therefore lower monthly payment.
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- No possibility of an interest rate change making your mortgage payment suddenly unaffordable.
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- If interest rate declines, your payment will also decline.
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- No anxiety over interest rate fluctuations.
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- Easier to qualify for due to lower interest rate and payment amount.
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Disadvantages--Fixed
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Disadvantages--ARM
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- More income needed to qualify because of higher initial mortgage rate.
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- If interest rate increases, your payment will also increase.
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- If interest rates decrease appreciably, it will be necessary to refinance to get a lower payment.
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- A large increase in interest rates--and payment--could make your house unaffordable.
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Mortgage Variations
If you take into account all of the available mortgages, and all their variations, there are hundreds and hundreds of different mortgage products available. Unfortunately, there is not enough space to discuss each of them. We will, however, summarized the major variations that are available.
Conventional: One of the most common sources of mortgage funding. Downpayments can range from 5% and up.
FHA (Federal Housing Administration): Contrary to many people's beliefs, FHA loans are not issued by the U.S. Federal Government but are instead insured by it. Properties purchased under these programs must meet certain minimum standards and possible loan limits. FHA-insured loans offer very low down payments (3 to 5 percent).
VA (Veteran's Administration): To qualify for a VA loan, you must be an eligible United States Service Veteran. If you qualify, one of the major advantages of a VA loan is the ability to purchase a home with no down payment.
To calculate your payment, use our payment calculator
Finding a Mortgage
We have found a simple way to compare mortgage sources and offers.  Quicken Loans allows you to submit one quick and simple loan request form and within 2 business days get up to 4 offers from lenders competing for your business. Click here for more information.
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