Selecting The Right Mortgage

When it comes to financing there are several options to consider. Here is a quick run down of some of the funding sources available. Choosing the right one could potentially save you thousands over the course of the loan.

When inquiring about a certain type of mortgage, ask the following questions.

• What are the interest rates and terms of repayment?
• What is the amount of down payment required?
• What are the estimated closing cost?
• Can the mortgage be resold?
• Are there any other fees you are not aware of?

There are several types of mortgage loans.

CONVENTIONAL MORTGAGE - Offers a fixed rate with repayment terms generally in the 10-15-30 year span. Required down payments can range from 10 to 20%. If you are a first time home buyer, ask if they offer any low down payment plans. Remember that private mortgage insurance is required for down payments that are less than 20% down. A fixed rate mortgage is the best for the buyer who plans to live in the home for a long time.

ADJUSTABLE RATE MORTGAGE - Interest rate changes to keep up with current market rates. This type of mortgage benefits a buyer who plans on reselling the home after a short period. Will your budget be able to afford the increased mortgage payment when the rates go up?

FHA MORTGAGE - Federal Housing Administration loans help the middle and lower class buyers to purchase a home. Their down payment requirement is generally 3% and you can use a gift letter or unsecured loan for the down payment and closing costs. A FHA mortgage is assumable at the same interest rate which is a great selling feature at time of resale.

VA MORTGAGE - Veterans Affairs loans are offered to veterans on active duty or have a honorable discharge. At time of resale, the loan can be assumable to another veteran or active military person.

ASSUMABLE MORTGAGE - The mortgage loan is transferred to the qualified buyer with the same loan terms and interest rate. Depending on how long the seller has owned the home, the buyer's down payment will be the difference between the selling price and mortgage balance with low closing costs.

BALLOON MORTGAGE - Initial interest rate is fixed for a certain length of time (may vary). At the end of that time frame a balloon payment is calculated at a higher interest rate causing an increase in the monthly mortgage payment. Look at this type of mortgage carefully. Statistics have shown the increased mortgage payment has caused delinquency and even foreclosure in some cases.

FYI - Most lenders will require that the property and school taxes be included in the mortgage payment. Private Mortgage Insurance will also be included, if applicable.

Don't be shy about calling several mortgage lenders for information. They are more than willing to spend time explaining what they have to offer. Keep in mind, they need your business. So be a smart shopper and come out with the best deal.

Copyright© 2008 FSBO Publishing Group, Inc., All rights reserved. This material may not be republished without written permission.