Monday, April 16, 2007

An Unconventional Truth

  1. The truth is, there are more mortgage options available to buyers than just the typical 30-year fixed loan. Known as "unconventional mortgages", buyers should know the additional options available. Please remember,they may not work for you, and to check with your lender about personal pros and cons.

    40-Year Fixed - these loans offer fixed rates with principal and interest payments each month. While your interest rate will usually be higher, your monthly payments will be less. One benefit of this type of financing is that it might be easier to qualify for and not hit your monthly budget too hard, but it will mean paying more in interest over the life of the loan and also cause you to build less equity into the home.

    Interest Only - this payment plan allows a borrower to only pay interest on the loan, usual a fixed time period of 5-7 years. At the end of the term, you will have to refinance, pay the balance, or start paying Principal and Interest. If you are likely to move in the next few years, this could be an option for you, but if you plan on living in the home for a while, then the increase in payments after the initial period of interest only could be too much for your pocket book to handle.

    80-20 or 80-10-10 - if you have a small down payment amount, then these two types could be for you. The 80-20 is a first mortgage of 80% and a second mortgage for the remaining 20%. It helps you avoid paying PMI (private mortgage insurance) which is tacked onto any loan higher than 80% of the purchase price. If you have at least a 10% down payment, then the 80-10-10 might work. In this instance, you have an 80% first mortgage, 10% second mortgage, and the 10% down payment. Some call the second mortgage a "piggy-back" loan. While the interest rate might be higher than on the first mortgage, the monthly payment for the combined loans could be less than a conventional loan with PMI.

    So if you are looking for additional options to purchase your next home, here are just a few to consider. Remember that many things could affect your eligibility like credit score, yearly income, etc, so go in with an open mind. You just never know what you might qualify for!

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