Deciding what kind of mortgage that is right for you, can be confusing and overwhelming, especially if you’re a first time homebuyer. If you take a little time to investigate the types of home loans available and get sound legal advice, you can avoid major headaches down the road.
There are many different kinds of loans available, but here are 7 of the most common and their pros and cons.
Fixed Rate Mortgage
Pros: Very straight-forward. Terms of 15, 20 or 30 years, and interest rates that stay the same.
Cons: Interests rates could fall and you’ll end up paying the higher rate.
Adjustable-Rate or Variable Rate Mortgage (ARM)
Pros: A low rate is usually offered for the first several years of the loan.
Cons: Rates can fluctuate and be unstable. If interest rates skyrocket, you’re stuck paying them.
FHA (Federal Housing Administration loan)
Pros: Helps otherwise unqualified buyers obtain a loan with a low down payment.
Cons: Loan size is usually limited and must meet specialized requirements.
VA Loan (Veteran’s Administration)
Pros: Guaranteed competitive rate loans with low, or no down payments for eligible veterans and surviving spouses.
Cons: Loan size is usually limited and homes are subject to a special VA appraisal.
Pros: A low fixed rate with low payments for a set period of time.
Cons: At a set point the balance of the loan is due immediately.
Interest Only Mortgage
Pros: Only interest on the loan is paid for a set period of time.
Cons: At a set point the balance of the loan is due, which can lead to high payments. The balance will have to be paid at once.
Pros: Lets seniors convert their home equity into cash, and loans/interest don’t have to be paid back as long as they live in the house.
Cons: These loans are subject to terms and conditions that must be fully explained to insure the borrower is aware of all the conditions. Due to most borrowers keeping a reverse mortgage until the end of their life, it is important that the borrower’s family understand the steps they will need to take to avoid foreclosure.
Before you make any kind of commitment, it’s always best to find a local real estate attorney who can provide you with first-time homebuyer assistance and advise you of your legal options and ensure your best interests are being put first. To get you started, download our FREE information flier for first-time homebuyers.
Get more advice about buying a house for the first time by downloading our free informational flier "First-Time Homebuyer Assistance: 3 Tips from a Real Estate Attorney."