With rates rising since the election many buyers are asking us should they buy now and what sort of mortgage should they get? And how much down payment do they need?
Down payment options are as low as 0% and can be as high as 20% depending upon the type of mortgage you may qualify for. If you’re veteran you can generally get a VA loan(see below) and if not there are some $0 down homes available in rural area with income and location restrictions.
If you are not a veteran or hunting in rural area fear not – there are currently loans with only a 3% or 3.5% downpayment option. Loans with less than 20% down generally require a separate insurance (called MIP or PMI – Mortgage Insurance Premium or Private Mortgage Insurance) but they are readily obtainable. So that $300,000 dream home might only require $10,500 in downpayment. Of course there are some other costs to close. But generally speaking we can help you make it happen with under 5% of the sales price in cash.
Home mortgages are a part of buying a home and they can be a confusing and stressful aspect of buying a home. What option is right for you? Which one meets your budget and your long term needs? Which one will you qualify for?
Let’s take a look at your options so you can make an educated decision when the time comes.
The most common type of mortgage, particularly after the past few years of mortgage scams and subprime mortgage crises, is a fixed rate mortgage. This is the traditional mortgage and it’s an attractive option it is a reliable and less risky type of mortgage. There are essentially four types of fixed rate mortgages. They include:
* 30-Year Fixed Rate Mortgages
* 15-year Fixed Rate Mortgages
* Adjustable Rate
The fixed rate is called such because you lock in your interest rate and it doesn’t change: it’s fixed. They’re a good bet for buyers because you know what your mortgage payment is going to be for the life of your loan. It won’t change based on fluctuating interest rates or fluctuating loan terms.
A 30 year fixed rate means your payments are spread out over the course of 30 years. The 15 year fixed rate means your payments will be spread out over 15 years. Biweekly means instead of paying a monthly payment, you pay every other week which adds a 13th payment every year. This extra payment cuts your mortgage duration to around 19 years rather than 30.
The faster you pay off your mortgage, the less you pay in interest. That’s the benefit of 15 year and biweekly mortgages. However, if you’re on a strict budget, a thirty year may be the best bet because the monthly payment will be lower even though you’ll be paying over a longer period of time and paying more in interest.
Fixed Rate Adjustable Mortgages
A fixed rate adjustable mortgage offers a tiered system. For a predetermined number of years, generally two, five or seven years, a person pays a fixed rate. Then the rate adjusts to meet the present interest rate. There are usually caps on how high the interest rate can adjust as well. Often no more than two or three points.
Some of these fixed rate adjustable mortgages may adjust more than once. Meaning after two years for example, they adjust to the current prime interest rate plus a few points. THIS is agreed upon during the mortgage process. Then a few years later the mortgage interest rate adjusts again.
The benefit of these types of mortgages is that you’ll generally begin the mortgage with a very competitive, and generally lower than standard interest rate. However, the interest rate will climb over the years which if you’re staying in your home can be more than you expect for a monthly payment.
If you’re considering only staying in your home for a few years, however, this is a great mortgage option that will save you money in interest.
Adjustable Rate Mortgages
Adjustable Rate Mortgages also called ARMS have become quite popular. Because like fixed rate adjustable mortgages, borrowers are able to buy at a lower rate. It helps new home-buyers get into a home for less. However, as rates increase and the ARM adjusts, the interest rates will increase and this can be a problem for some if life hasn’t gone as expected. Generally, there are caps on how high an interest rate can go and the mortgage term periods are fixed so borrowers know what to expect.
VA loans are restricted to individuals qualified by military service. FHA loans are open to qualified borrowers and there are some qualifying restrictions. However, they’re generally open to most borrowers.
If you’re buying a home, take some time to research your options and then find a qualified and trusted lender to consult with. Buying a house is a fun and exciting time. Know the facts and buy with confidence. And if you have any questions feel free to call us at 770-726-1454 for a no-obligation chat.