What type of mortgage fits you best?



Shopping for the type of mortgage that fits you best can make your head spin. You’ll be asking yourself: should my interest rate fluctuate? Who do I get a mortgage from? What if my financial history is…complicated? You’ll probably wake up in a cold sweat reciting interest rates until you have clarity about the process.


The first step towards peace of mind is educating yourself. We’re here to help you do just that. It’s a fun topic so get your party hat.


3 Types of Mortgages


FHA


An FHA mortgage is a loan insured by the Federal Housing Authority, a part of the U.S. Department of Housing and Urban Development (HUD). The government’s involvement lowers the liability of the mortgage so you look like less of a mess…I mean…risk to the lender.


Pros: Low down payment (3-5%), low closing costs, low credit qualification, gifted down payments accepted, accepts buyers with foreclosure or bankruptcy.


Cons: Mortgage Insurance Premiums (MIP), lender must be FHA-approved, minimum property requirements.


Ideal for: First time home buyers who cannot afford a 20% down payment or have a complicated financial history. This type of loan that lets you use money ‘gifted’ to you as a down payment (Mom? Dad? I visit you all the time, right?). Having financial endorsement from the government can help lenders overlook a home buyer who would typically be unqualified for a conventional loan.


Conventional Fixed-Rate


A conventional fixed-rate loan, AKA a ‘vanilla mortgage’, is the most traditional mortgage a home buyer can obtain. Its interest rate is unchanging and lasts the entirety of the loan.


Pros: Fixed and predictable monthly payments.


Cons: Harder to qualify for due to the fixed nature of the rate and the higher payments. Unlike an Adjustable Rate Mortgage, Fixed Rate Mortgages do not offer low initial monthly payments.


Ideal for: Buyers with consistent income who plan on owning their home for a long period of time. The longer the repayment period—say 30 years—the lower the monthly payment will be. With a shorter term—15 or 20 years— monthly payments will be higher because there’s less time to repay the loan.


Adjustable-Rate


An adjustable-rate mortgage (ARM) has a shorter term—typically 5 to 10 years. ARM’s have fluctuating interest rates.


The interest rate is modified after an initial fixed-rate period. For example, a 3-year Adjustable Rate Mortgage has a fixed interest rate for 3 years. Every subsequent year after the initial 3 year period, you’ll see a change in the interest rate that occurs every year you have the loan. The lower initial rate of an ARM may allow you to qualify for a loan larger than you typically would. It’s a good option for buyers who don’t currently have the income to comfortably pay the higher monthly payment that usually accompanies a longer term loan.


Pros: Lower interest rate, easier to qualify for due to lower payments.


Cons: Possible sharp increase in monthly payments after initial interest rate period.


Ideal for: Buyers who intend on remaining in a property for 10 years or less.


Decisions, Decisions


It’s easier today than it’s ever been to find a mortgage option that fits your financial situation. Whether you’re hands on or prefer to be guided through every step, the options are numerous.


After deciding what type of loan fits you best, you can decide where to get your mortgage from by reading Part 2: Where do I find the best mortgage for me?

13944 SW 8th St. #210 Miami, FL 33184

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