About 30% of Americans don’t know a lot about mortgages. They don’t even know what APR means (annual percentage rate).
Lack of knowledge can have disastrous consequences in the future. You could end up getting a mortgage that doesn’t meet your needs.
Educate yourself and learn what the different types of mortgage loans are. You’ll go into the home buying process with the knowledge that will help you get the right loan and right home.
Read on to learn what you need to know about mortgages when buying your first property.
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1. Fixed-Rate
A fixed-rate mortgage refers to the interest rate on the loan. The interest is fixed, so it stays the same for the life of the loan.
That’s partially why the real estate market is so active right now. Interest rates are so low, it’s a great time to get a low interest rate for the next 30 years.
2. Adjustable-Rate
You have to be careful with these loans. Interest rates are at record lows and they won’t stay that way forever.
If you get an adjustable-rate loan now, plan on paying a higher monthly payment later on. Most mortgage advice experts suggest locking down a fixed-rate loan at current interest rates.
3. Balloon
Balloon mortgages are short-term loans that have low monthly payments for a certain period of time. At the end of the loan, the rest of the loan is due in one large payment.
The loan period is usually 5-7 years, compared to 30 years for a conventional mortgage.
This may seem like an appealing option, but you will have a hard time selling the home if you still have to make that final payment. Most mortgage advice says you should avoid this if you’re buying your first property.
4. Government-Backed
These loans are obtained through banks, but they’re guaranteed by government programs.
As a first-time buyer, you’ll want to look into a first-time homebuyer loan. This is backed by the FHA and only requires a 5% down payment.
Another example of a government-backed loan is a VA loan, which is for military veterans and service members.
5. Private
Private mortgages are loans that are given by private individuals or companies. These private mortgage lenders borrow from another lender or use their money to fund the mortgage.
They make money from the loan origination fees. These are a good option if you have a problem getting a loan through traditional lenders.
The Types of Mortgage Loans
If you’re a first-time buyer, you have a lot to learn about the homebuying process. It’s crucial that you learn about the types of mortgage loans before you start shopping for a home.
You could miss out on great opportunities like an FHA loan. It’s possible to end up with a balloon mortgage that doesn’t come close to meeting your needs.
In the end, a little financial education goes a long way. Want to learn more? Click on the Education tab at the top and check out the other articles on this site.
