Real Estate: More Mortgage options
There are many types of mortgages which are much less
common than Fixed rate or adjustable rate mortgages. Some of theses mortgage
types are described here.
Hybrid mortgage - This is a combination of fixed-rate
and ARM. Most most common ones are 3/1, 5/1, and 7/1 loans. It has a low fixed rate for the first
3, 5 or 7 years, then adjusts
yearly for the remaining 27, 25 or 23 years. Two-step mortgage of
5/25 and 7/23 from Fannie Mae do the same thing. The lower rate means it's easier to
qualify for a mortgage, since the monthly payments are lower. These mortgages are ideal
for first-time buyers and if you have a job that demands that you relocate
often. Your monthly loan payments are lower for those first years than a regular
30-year fixed loan, and when it is time to adjust to the higher rate, you can do
so at no cost. The new rate that you get after 5 or 7 years though can be high,
which is when most people decide to move.
Balloon Mortgage - A balloon style mortgage is a fixed
rate mortgage. The interest rate on this type of mortgage is generally very low.
Lower that the current going rate for a fixed rate mortgage. This interest and
payment plan lasts a specified period of time, say 5 or 10 years. At that point
the entire remaining amount of the mortgage becomes due in full. You might
choose a balloon mortgage if you anticipate refinancing at the end of the term,
if you'll have enough money to pay off the loan in a lump sum, or — less wisely
— if you can afford to buy only because of the comparatively smaller monthly
payments that may be available with a balloon mortgage. Sometimes, this type of
loan is arranged as "interest only," which means you pay only the interest on
the loan and owe the entire principal at the end of the loan term.
Biweekly mortgage - With a regular mortgage, you make twelve monthly
payments per year. With biweekly mortgage, you make payments every two weeks (to
total 26 in a year), or the equivalent of 13 payments per year. This allows you
to pay down the principal faster. Thus, substantially reducing the life of the
mortgage and the interest payable over the life of the mortgage. The problem
with this type of mortgage is that you are stuck into biweekly schedule, you
have to make those payments or face default. It's better to get a conventional
mortgage and prepay principal at your own pace and schedule.
No Document Mortgages (or Non Conforming Loans) -
A no documentation mortgage is a mortgage which does not require any
documentation of income, verification from employers and does not require tax
returns for a couple a years. If you can find a lender willing to give this type
of loan, prepare to pay BIG interest rates.
You will have to put down a larger down payment amount (25%-30%) and pay more
points at closing than other types of loans. This should be the loan of last resort!
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What are Jumbo Loans?
Loans that are in excess of an amount set by the Federal National Mortgage
Association (Fannie Mae). This amount is presently set at $252,700 for a single-family home,
or $323,400 for a two-family home in the continental US, in Hawaii and Alaska,
the amount is $379,050 for a single-family home or $485,100 for a two-family
home. Most commercial lenders agree to use these guidelines, which are set by
the Federal National Mortgage Association (Fannie Mae). Jumbo loans have higher
interest rates and fewer financing options, and are also called non-conforming
loans.
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How to choose the right mortgage:
As you can see there are variety of mortgages. If you are
planning to stay in your home for only 5 to 7 years, there is no reason for you
to get a 30 year fixed-rate loan. You'll save thousands by getting some form of
ARM or an hybrid loan, such as a 5/1 or a 7/1. If you are going to be there
longer than that, then a fixed-rate loan is probably a good idea. If you can
afford a 15 year loan instead of a 30 year loan, go with 15 year mortgage.
You'll save more than half the interest on a 30 year loan for the same amount.
Another factor to consider when choosing a loan is points and
fees. Should you pay them to get the lower interest rate or should you go with
no points, no-cost loan with a slightly higher interest rate? To find out if you
should pay points, add up the total cost of points and fees, then figure out how
much you'll save each month with the lower rate and divide it. That'll give you
how many months before it's paid off. After that the rest is savings in your
pocket. For example, lets say your total cost of your points and fees are $4,000
and if you can save $80 every month with the lower rate. It would take you 50
months to($4,000 % $100) break even. So if you are planning to stay for longer
than 50 months, you should pay the points and fees.
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What is included in a mortgage
payment?
Your monthly mortgage payment includes principal
and interest. And depending on the amount of down payment, you may
be required to have and escrow to pay property taxes as part of
your mortgage. The lender will usually hold the amounts you prepay
to cover property taxes in an interest bearing account until they
are due. If you put less than 20% in down payment on a home, the
lender will most likely require you to have an escrow.
Most lenders will also require you to keep
homeowners insurance and flood insurance in escrow to protect
their investment. This way they always know that you have the
insurance to protect the property that they are lending you money
on.
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Next -->>
0 to 5%
down payment with FHA & VA loans?
Table of Contents:
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Should
you buy a home?
Renting vs. Buying:
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Steps to buying a home
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What is a
Mortgage and do you needed?
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Different types of Mortgages
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More Mortgage
Choices
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0 to 5% down
with FHA and VA loans?
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Cosigning: The Pitfalls
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Qualifying for a
Mortgage
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How much of a
mortgage and a house can you afford?
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Finding a home with FSBOs & Real Estate Agents.
- It's closing
time: Title and the keys please!
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Tapping your home
equity: Refinancing
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Tapping your home equity: Home Equity Loans
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Frequently
Asked Questions (FAQs) on Real Estate & Mortgages
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