A mortgage is a loan for a home which uses the property itself as collateral. Putting a mortgage together takes several steps and can often take more than a month from start to completion. Your real estate agent can help you navigate the process and can make recommendations for reputable mortgage lenders.
Here are several basic kinds of mortgages.
Fixed Rate Mortgage
The interest for a fixed rate mortgage remains the same for the life of the loan and the payment stays the same month after month. During the first few years, most of the payment is applied to interest and only a small percentage to the loan principal. Fixed rate mortgages are most typically 30-year loans, but they can also be 10, 15 or 20-year loans. Your monthly payments are lowest by spreading out over the longest period of time.
Adjustable Rate Mortgage
The interest rate on an adjustable rate mortgage (ARM) will change over the life of the loan. There is typically a cap on the amount the rate can change. The most common of these is a hybrid ARM which is an adjustable-rate mortgage that features an initial fixed interest rate period, typically of 3, 5, 7, or 10 years, before the interest rate changes.
If you are looking at a mortgage of over $417,000, you may want to explore jumbo loans. These allow the homeowner to pay only interest for the first five, seven or 10 years. Then the interest rate adjusts and the borrower pays both principal and interest. Usually the monthly payment goes up significantly after the interest rate is reset.
FHA loans are provided to help borrowers who don’t have a 20 percent down payment or who need more flexible income or credit requirements. Managed by the federal government, FHA loans insure the lender against possible losses from borrower default. Although the down payment can be as low as 3.5 percent of the purchase price, the borrower will still be responsible for mortgage insurance which will increase the monthly payment.
Veteran Affairs (VA) loans provide up to 100 percent financing with little or no down payment and no monthly mortgage insurance. They can be fixed term of 10, 15, 20, 25 or 30 years. There are limits on the available loan amount. VA loans are available to current and former members of the U.S. armed forces or the current or surviving spouse of one.