When you decide you are ready to purchase a home, you are
understandably excited. Home ownership is a valuable
investment not only in real estate, but also in lifestyle.
Along with the benefits that owning a home provides, there
are there are also financial responsibilities. There are
property taxes to pay, and homeowners insurance to
purchase. And since most people, especially new
homeowners, do not have the means to purchase a home
outright, a mortgage is probably a necessity.
You have a variety of choices when shopping for a home
mortgage; there are fixed and adjustable rate mortgages,
and different lengths of mortgage loans. If you have poor
credit, there are a number of mortgages options that will
help you to purchase a home.
Length Of Mortgage - The most common mortgage length is
thirty years, but ten and fifteen year loans are also
available. The longer the duration of the mortgage, the
lower your monthly payments will be, though you will pay
out much more money over the length of the mortgage. With
a ten or fifteen year mortgage you will be apply more money
toward the principal early in the loan, and while your
monthly payments will be higher, you will begin to amass
equity in your home much more quickly.
Fixed Rate Mortgages - A fixed rate mortgage has the
advantage of locking in a certain interest rate for the
duration of the loan. This is especially helpful if you
purchase a home when mortgage interest rates are low. Your
rate will be locked in, and you will be protected against
rising interest rates. On the flip side, if interest rates
fall further, you will be stuck with that rate unless you
refinance your mortgage.
Adjustable Rate Mortgages - Adjustable rate mortgages,
commonly called ARM's, usually offer lower initial interest
rates than their fixed rate cousins. The danger of an
adjustable rate mortgage is that if interest rates rise,
your rate, and therefore your mortgage payment will
increase. Fortunately, the rates on ARM's are capped,
having both a periodic rate cap limiting the amount your
interest rate can increase at once, and a lifetime cap
which limits the amount your rate can rise over the
duration of the mortgage.
Many people obtained adjustable rate mortgages during the
recent housing boom, betting that mortgage interest rates
would fall further or at least hold steady. Many of them
had sub prime credit and had no choice but to get an
adjustable rate mortgage, and as the housing market slowed,
interest rates rose, and mortgage payments grew. As a
result, many already cash-strapped homeowners were driven
to foreclosure.
Fixed-Period Adjustable Rate Mortgages - A safer
alternative is an adjustable rate mortgage which has an
initial period where the interest rate is fixed, anywhere
from one to ten years. These mortgages are sometimes
called hybrid ARM's. This fixed rate period provides you a
buffer against rising mortgage interest rates, and gives
you time to build home equity and improve your credit.
Hopefully you take advantage of this time and begin to shop
for a low fixed rate mortgage.
Sub Prime Mortgages - Sub prime mortgages are designed to
meet the needs of potential home buyers who have damaged
credit. If you have a record of slow payments on credit
accounts, or have a FICO score below 600, you may have to
obtain a mortgage from a sub prime lender. Because of your
less than perfect credit, you can expect to pay a higher
interest rate than someone with immaculate credit. but by
shopping around you should be able to find a competitive
interest rate, as every lender has its own criteria to
determine how much of a credit risk you would be.
Finally, be sure that regardless of the type of mortgage
you choose, you will be able to afford the monthly
payments. If you get an adjustable rate mortgage, plan
ahead and decide what you will do if interest rates rise.
Work at improving your credit score, and if you decide
later to refinance your mortgage, you will have more and
better options.
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Gregg Pennington writes articles on a number of topics
including mortgages, loan consolidation, and home equity
loans. For more mortgage information visit:
