When you’re purchasing your first home, it can feel like there are countless mortgage options out there. As a first-time home buyer, you may be concerned about what mortgage is right for you. Do you want an adjustable rate mortgage? Do you want a fixed or floating interest rate? How much equity do you have in your car to use as collateral? What are the pros and cons of each mortgage type – and which one is best for your situation? These are just some of the questions that may be running through your mind as you begin searching for your first home. Luckily, we’ve compiled everything you need to know about mortgages in America into a brief list. If this sounds like something that could benefit your situation, keep reading to learn more about the different types of mortgages available to home buyers in America today.
Adjustable Rate Mortgages
Let’s start off with adjustable rate mortgages (ARMs). These are mortgage types that have a “reset” feature. This means your interest rate can increase or decrease, depending on the financial market. The idea behind these mortgages is that the interest rate is initially very low. The hope is that, over time, the interest rate will increase, but it will still be lower than what fixed rate mortgages are at the time. However, this isn’t always the case. If the financial market is extremely volatile, the interest rate on your ARM could go up significantly, which would make your monthly payment much more than you expected. For this reason, ARMs are often recommended for people who are in a great financial situation. If the interest rate goes up and you can’t afford it, you may want to look into refinancing the loan to get a fixed rate mortgage.
Fixed Rate Mortgages
As the name suggests, a fixed rate mortgage never changes. This means your interest rate will stay the same throughout the lifetime of the loan. There are a few different types of fixed rate mortgages. You could choose a fixed rate mortgage with a balloon payment, a fixed rate mortgage with an adjustable rate, or a “hybrid” fixed rate mortgage. A fixed rate mortgage with a balloon payment means that your monthly payment will be lower than a traditional fixed rate loan during the early years, but you’ll have a large payment at the end of the loan. With a fixed rate loan with an adjustable rate, you’ll pay a lower interest rate than with a traditional fixed rate loan, but you’ll have to get a new fixed rate loan every few years. With a “hybrid” fixed rate mortgage, you’ll have a fixed interest rate for a certain amount of time, such as five or 10 years. After that time period, you’ll have a fixed rate mortgage with an adjustable rate.
If you’re looking to purchase a home with a significant amount of money in student loan debt, you may want to consider a combination loan. A combination loan is a fixed rate mortgage that has a smaller, separate loan attached to it that is used to pay off your student loans. The fixed rate of the main loan will be lower than what you’d pay on a standard loan. The interest rate on the attached loan will be higher than what you’d pay on a standard loan as well. So, if you have a significant amount of student loan debt, you may want to consider a combination loan because it can save you money on your overall mortgage payment. However, this will depend on the interest rate of the main loan.
Adjustable-Floating Rate Mortgages
Adjustable-floating rate mortgages (ARFMs) are very similar to adjustable rate mortgages. The only difference is that the interest rate can either increase or decrease. With an ARFM, you don’t know for certain when the interest rate will change, but it can go up or down. This is more common with ARFMs than it is with ARMs. ARFMs are often recommended for people in good financial situations, just like ARMs are. If the interest rate goes up and you can’t afford it, you may want to look into refinancing the loan to get a fixed rate mortgage.
Before you start house hunting, it’s a good idea to get pre-qualified for a mortgage. Pre-qualification is a process where a lender will tell you how much money you can borrow based on the details of your financial situation. Pre-qualification, on the other hand, is a process where a lender will tell you how much you can afford to pay each month based on the details of your financial situation. This is typically done by a mortgage broker who has access to multiple lenders at once. Pre-qualification is a good idea because you’ll know what you can afford before you start looking at homes. If you see a home that you want to buy, but it’s over the amount you can afford, you won’t waste your time looking at it. You’ll also know how much money you’ll have leftover each month once the mortgage payment is taken out of your paycheck.
Points and Fees
Points are one-time fees that you may have to pay at the time of closing to get a lower interest rate. For example, if you’re getting a 30-year fixed rate mortgage, and you pay two points, it will lower your monthly payment by about $37. You may also have to pay closing costs, appraisal fees, and other miscellaneous fees at the time of closing (or whenever you sign the final paperwork to make the sale official). You can find out how much these fees are before you start shopping for a home. Some lenders will give you an estimate of what you’ll pay in fees, while others will tell you the exact amount. It’s important to factor these fees into your budget because you’re expected to pay them out of pocket.
When you’re purchasing your first home, it can feel like there are countless mortgage options out there. There are a few different types of mortgages, but the three main types are adjustable rate mortgages, fixed rate mortgages, and combination loans. These are just some of the things you should know about mortgages in America. If this sounds like something that could benefit your situation, keep reading to learn more about the different types of mortgages available to home buyers in America today.