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Mortgage Options For Home Buyers

Mortgage Options For Home Buyers

There are a number of different types of mortgages available for home buyers today which can provide significant choice but can also make selecting the correct mortgage confusing. Different mortgages are better for different situations so the key to picking the mortgage that is correct for you is to analyze what resources are available to you and then pick the mortgage which best accomplishes your overall goals.

More traditional mortgages include Conventional, FHA and VA loans. These types of mortgages are considered conventional because they tend to have standard payment plans for either 15 or 30 years at a fixed interest rate which allows borrowers to have predictable payments for a set period of time. There are also more exotic types of mortgages which include Adjustable Rate, Sub-Prime and Interest Only loans. Both types of mortgages will be explained and hopefully will help you when shopping for a mortgage.

Most lenders will recommend a traditional mortgage for home buyers because most homeowners seek stability and predictable monthly payments. This is especially true if it's a first home buyer or if you are starting a family. The only differences between conventional, FHA and VA loans are the types of groups which are targeted for these mortgages. Conventional mortgages will have slightly higher interest rates but often have higher ceilings of what can be borrowed. FHA loans are government backed mortgages which have lower interest rates but will often require PMI or Private Mortgage Insurance if a substantial down payment is not placed when taking the mortgage. VA mortgages tend to be available only to military veterans and have additional perks which can be beneficial for homeowners.

Less conventional types of mortgages include Adjustable Rate Mortgages for ARMs which often have a fixed interest rate for a limited period of time, for example 3 to 5 years, and then adjust to more closely follow market interest rates. Adjustable Rate Mortgages are normally not recommended for homeowners because monthly payments can increase substantially once the interest rate resets making it difficult to make the monthly mortgage payment. Interest only loans are exactly that. This type of loan allows you to have lower monthly payments by only paying interest on the outstanding debt unfortunately this of course results in no decrease in principle. Sub-prime mortgages are for individuals who may not qualify for other more conventional types of loans and their only option is to have higher interest rates under more onerous terms. Sub-prime loans are less than ideal but may be the only option for home buyers with poor credit histories.

There are of course many other types of mortgages available which have not been covered so be sure to ask your mortgage lender if there are any other types of loans which may be applicable to your situation. The key to selecting the appropriate mortgage is to thoroughly evaluate your current financial situation while taking into account your plans for the future and discuss this with your mortgage lender to take out the loan that best accomplishes your plans for the future.

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