Exploring Your Mortgage Options

When you start your search for a new home and sit down with a lender to explore your financing options, you may be a bit surprised by the many different types of mortgage loans that are available. Although the many different options can seem confusing and even a bit understanding, it is important to gain an understanding of your options so you can make the decision that is best for you.

Some of the mortgage options you will have available to you when purchasing a home include:

Basic Home Mortgage
Government Mortgage Loans
Flexible Payment Mortgages
Balloon Mortgages
Interest Only Mortgages

Although each has the same basic premises, there are difference that need to be taken under consideration when it comes time to purchase you home.

Basic Home Mortgage

There are actually a couple of different options within the basic home mortgage category. The two main categories within this group, however, are:

Fixed Rate Mortgages
Adjustable Rate Mortgages

Approximately 70% of mortgage loans all within the fixed rate mortgage category. With this type of mortgage, the interest rate you pay does not change over the lifetime of the loan. Therefore, even if interest rates go up within the market, your rate will stay the same. The same is true, however, when interest rates go down in the market. In order to take advantage of a lower rate, homeowners have to refinance their homes at the lower interest rate.

Adjustable mortgages are different from fixed rate mortgages because the interest rate changes with the market rate. This means the monthly loan repayment amount may go up and down according to the market rate. This type of loan is generally more attractive to those that do not plan to keep the home for very long.

Government Mortgage Loans

There are three primary types of government mortgage loans a homebuyer may qualify for. These include:

FHA Loan
VA Loan
USDA Rural Development Guaranteed Housing Loan

FHA loans are a form of fixed rate mortgage, but only first time homebuyers can qualify for this program. In addition, the buyer must have a low to moderate income in order to receive an FHA loan, which is easier to qualify for and makes it possible to purchase a home with a smaller down payment. The interest rates are also generally lower on these loans than on traditional loans.

VA loans are only available to those that were in the military or to their surviving spouses. Veterans can often obtain one of these loans with a small down payment or without a down payment at all.

The USDA Rural Development Guaranteed Housing Loan is also provided to those with a low to moderate income level, but is restricted only to those purchasing a home in an area that has been designated as Rural Development eligible. These loans require no down payment and the buyer does not need to carry mortgage insurance. It is also much easier to qualify for one of these loans than a traditional loan.

Flexible Payment Mortgages

Flexible payment mortgages are a form of adjustable rate mortgage. Whereas traditional adjustable rate mortgages have a cap on how high the interest rate can become, however, flexible payment mortgages do not. This means the monthly payments may start off low, but can become significantly higher over time.

Balloon Mortgages

With a balloon mortgage, you will have a fixed interest rate and you will pay the same amount each month toward repaying the loan. At the end of a certain period time, which is generally about five to seven years, the remaining balance becomes due at once. This can either be paid out of pocket or by refinancing the home.

Interest Only Mortgages

As the name implies, homebuyers only pay the interest on these mortgages each month for a certain period of time. This results in monthly payments that are much lower than a traditional mortgage. Once the interest only period is complete, however, the payment increases dramatically in order to start working toward paying the principle along with the interest. This type of loan is generally best for those that anticipate having a much higher income in a few years but that want to purchase a home now.

About the Author:
Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.byownermls.com/, a For Sale By Owner MLS service, the leading real estate search engine of homes for sale by owner (FSBO). For more information, please visit http://www.byownermls.com/.

Federal, State and Local Changes Being Made to Boost the Housing Market

In an effort to spark the economy and to recover from the foreclosure crisis, federal officials have been working on a number of reform programs. Of course, in order to have a positive effect on the economy, these programs also need to be developed at the state and local levels as well. One area that all three levels of government are focusing on is trying to stimulate the housing market, which will then help give the economy a boost.

“There’s a rule of thumb that approximately 30% of the value of the purchase of a home, let’s say the home was purchased for $100,000, 30% over and above the purchase price is going to go into the economy, and that starts with the transaction itself,” said Nanci J. Rands, who is the director of the Michigan Association of Realtors. “Money goes to pay the commissions, title insurance…movers, painters…the purchase of furniture – the list goes on and on and on. The purchase of the house is just the beginning – it begins the whole process…and has a good effect on the economy.”

So, what are some of the changes that are taking place? First, the FHA has increased the loan amounts it offers and has created more programs to help low-income and first-time buyers with their home purchases. In addition, mortgage brokers and banks have made some changes to the types of loans they offer to homebuyers. Namely, they have reverted back to traditional mortgages and have increased the requirements for credit scores and down payment amounts. While this may seem undesirable if you have a less than perfect credit rating, implementing these changes will help prevent people from purchasing homes the aren’t really ready to buy.

“The sooner we eliminate risky lending due to fraud, the foreclosures will slow down. Although I don’t know what percentage of foreclosures are fraud related, one less foreclosure is good for this market. With the spring market under way, I see positive things in the future for our market,” said Mason Miller, who is the vice president of sales at Flagstar Bank.

In addition to federal changes, each state is also making reforms to try to improve the housing market and the economy. In Michigan, for example, the Principal Residence Exemption Act has been put into place. With this Act, homeowners that were forced to move but are unable to sell their old homes can receive tax breaks by claiming two principal residences. Of course, certain requirements apply. For example, the home has to be on the market and it cannot be used for commercial purposes or lease. In addition, the homeowner must still live in Michigan. Nonetheless, the Act helps support the Michigan housing market by providing people with an incentive to stay in the state.

Since changes are being made at state levels and local levels, homebuyers and sellers should look into recent developments in their area in order to be certain to save or make as much money as possible.


About the Author:
Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.byownermls.com/, a For Sale By Owner MLS service, the leading real estate search engine of homes for sale by owner (FSBO). For more information, please visit http://www.byownermls.com/.