Buying a home is the biggest purchasing decision most of us make and we like to it a few times in our lifetime. However it’s not usually an enjoyable activity. Purchasing a home, is said to be more stressful than bankruptcy and divorce, and if we need to sell an existing home to buy another well that just added to our stress. 😮
There are of course a lot of different types of buyer including the most common:
- Distressed buyers – low income earners
- First home buyers
- Owner occupiers
- Real estate investors
And depending on your region there are more specific buyer types:
- Military services (Veterans)
- Rural Buyers
There are a lot of mortgage options and the right choice for you may not be the right choice for another buyer. Lenders like to personalise their products too, including what they name them, so if you’re initially overwhelmed by the choice it’s understandable.
Lenders are running a business. They have competitors, and they want to attract even the most novice among us, so the basics of their products are disclosed and comparable.
Here is a complete list of the various mortgage types in America and below are a few of the types in more detail. Before making any decisions on which mortgage type is right for you get legal counsel and contact your financial advisor or independent mortgage lender.
Mortgage types consist of:
30-Year Mortgage Fixed
A 30-year fixed mortgage is a mortgage that remains the same for the duration of the loan, and it’s spread out over a 30-year period. This is a risk-adverse mortgage, and if you want to remain in the home for over 10 years, this is a great mortgage option for you.
Interest and mortgage payments stay the same through the entirety of the loan.
Your balance cannot change with this loan type, and your only risk is if rates fall. If you’re locked in at a 4.5% rate and rates fall to 3%, you’ll still be paying the higher rate. But if rates continue to rise, you’ll be locking in a lower rate.
15-Year Mortgage Fixed
A 15-year fixed mortgage is just a shorter term than a 30-year fixed mortgage. You’ll be repaying the loan over 15 years. Your loan payments will be higher, but you’ll save a significant amount of money in interest by paying off the home earlier.
While obviously a better mortgage choice, higher payments and building equity fast may not be a good choice for some borrowers.
With adjustable-rate mortgages (ARMs), the interest rate adjusts at a different time. What happens with an ARM is that there’s an initial rate, lower than the current 30-year rate, but then rates are adjusted to match the current market interest rate.
So, you may pay lower payments the first five years of the loan, and then you may pay a lower or higher rate after the 5/1 period is met.
Your balance won’t go up, but there is always the risk that rates will skyrocket and cause you to pay significantly higher rates.
The reason to pick an ARM is that the initial lower interest rate may allow you to get into a home, and hopefully your finances will improve during the initial period if rates rise.
FHA Loans, USDA Loans and No-Payment Down Loans
FHA and USDA loans are a popular option because you’ll have to pay 3.5% down or nothing down in some cases. This is a great option for buyers that can’t come up with a 10% – 20% down payment for a mortgage.
These loan options may have a higher interest rate, but the low-cost or no-cost down payment is an attractive option.
Interest rates remain the same with these loans, so you’ll always know what your mortgage payment will be.
Alternative mortgages are also available, and these options allow for everything, from 20-year and 10-year mortgage options to mortgages for investment properties, vacation homes and construction loans.
Veterans also have their own loan options, which aim to help veterans get into a home faster and with lower rates.