I Have How Many Mortgage Loan Options?
Options can be a great thing, right? McDonalds has a great example of options. Its value meals are numbered, and so many people have settled into a comfortable routine ordering a number one or a medium number five. But too many options can overwhelm us. The Cheesecake Factory is known for its huge menu. It's like an encyclopedia. A menu that huge can make us feel like we'll never figure out what to order for dinner. The same can be said about financing when it's time to buy a house. Too many mortgage loan options can confuse and frustrate a home buyer.
When our family tells us about their home buying experience and how they paid for their house...then our friends tell us about their favorite Realtor and how she sent them to this bank or that lender and they're only paying this rate and had that down payment... It can be confusing. Plus, throw into the mix all the lenders and banks selling their programs and ideas, and it gets to be a bit much.
But if you only had one or two choices available, your mortgage loan options would be a bit too limited. A good balance is hard to nail down, but understanding the basic mortgages is at least a step in the right direction.
Fixed Rate Mortgage
Let's start with the fixed rate mortgage loan option. It's also called the FRM, and it's exactly as it sounds. You pay a fixed interest rate for the life of the loan. With today's rates hovering in the high-3 to low-4 range, a fixed rate mortgage means you won't end up paying 8 percent if the interest rates begin to climb - and plenty of analysts say it's only a matter of time before the historically low rates start to go up.
When rates were in the double digits more than a decade ago, a fixed rate mortgage wasn't the best deal around. Instead, many homeowners had adjustable rate mortgages (ARM) that changed with the market. As interest rates fell, so did their rates and their house payments. In that scenario, it made sense. It also makes sense for someone like Mark Zuckerberg who refinaced his home recently. The founder of Facebook got a 1% interest rate in an ARM, which he can pay off quickly if the rate goes way up too fast. For him, it's more of a place to keep his money (as equity) rather than a bank with almost no interest paying out. It's basically free money for Mr Zuckerberg. But if you're not a billionaire like him, it may not be a great idea to go with an ARM right now.
Low Down Payment Options
Coming up with a down payment and closing costs can prove difficult for many home buyers. But even in today's housing market that seem so negative and beat-up according to news reports, you have mortgage loan options that have low and zero down payment possibilities. FHA offers a 3.5% down payment option, while USDA Rural Development is a 100% financing mortgage loan.
With FHA, the house needs to pass certain standards. If it doesn't pass the FHA inspection, hope isn't lost though. You still have the FHA 203k home improvement loan to help get the house up to standards after the closing.
For those buyers with no cash for a down payment, USDA Rural Development allows a buyer to finance the home price completely, as long as it's located in an approved area and meets certain housing requirements. The house can't actually be a farm - no barns allowed. But it does have to located outside major metropolitan areas.
Home Improvement Loans
Another option for today's home buyer are home improvement loans that also finance the purchase of the home. HomePath Renovation and FHA 203k are two mortgage loan options you could use to buy a home and have it fixed up by a professional. Each loan requires a small down payment, but it's much less than conventional loans that often require 10-to-20 percent down.
HomePath Renovation specifically finances the purchase and remodeling of a Fannie Mae-owned home. This is the "buy a foreclosure and fix it up" option that's pretty popular in the current housing market.
FHA 203k is the "buy a home and fix it up" option that's not limited to a specific home seller like Fannie Mae. With the 203k you could finance a lot of remodeling projects into the purchase of a home. Some projects covered include a new deck, new windows, basement waterproofing, roof replacement, new flooring, new kitchen appliances and more.
As you can see, today's home buyer has just enough options to make it a good time to buy, but not so many that it's overwhelming and hopeless. Learn more about these options and a couple more in our free guide. Download "The Only Mortgage Loan Options Guide You Need" to help narrow down the choices to the best options for you in today's housing market. The free guide covers the loans around today available at AmeriFirst Home Mortgage.
overwhelmed photo: Flickr user Sung Sook