Name that mortgage!
March 7, 2008
What are the different types of mortgages?
It’s a simple question, but also a question first time homebuyers may not be able to answer. Here are some of the types of loans you may consider:
· A fixed rate mortgage. This means the interest rate offered by your lender will remain the same throughout the life of the loan. This is the most traditional of the various loans.
· An adjustable rate mortgage. This means your interest rate will start out at a certain percentage and can vary, and will most likely increase, throughout the life of your loan. If you don’t account for higher home payments over the life of your loan, you could get into trouble when your interest rate suddenly increases, thereby increasing your mortgage payment. These loans are often offered to those with lower credit ratings.
· A graduated payment mortgage. This loan starts out with smaller monthly payments, but increases over time. The graduated payment mortgage is geared towards those who may not have a lot of money to put towards a home now, but expect to have more money in the future. This could be a risky proposition if the revenue you anticipated doesn’t actually come through down the road.
The best thing to do when you are ready to purchase a home is to look for a first-time homebuyers class, like the class offered by Advantage Credit Counseling, a comprehensive housing counseling agency certified by the Pennsylvania Department of Housing and Urban Development. The class covers topics such as financing a home, qualifying for a mortgage, shopping for a home, the loan application process and the closing process.
The next home buying topic is debt-to-income ratios.
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