Mortgages

How Do You Know Which One is Right for You?

You want to buy a home, but you are completely overwhelmed with all the types of mortgages available and you have no clue what you need. If this sounds like you then you are like most other homebuyers. However, don’t despair because you can easily educate yourself on all the types of mortgages, their benefits and drawbacks, and what best fits you. Conventional, FHA, Purchase Money, and Adjustable Rate mortgages are just a few of the more popular types of mortgages.

Conventional Mortgages

A conventional mortgage is when a lending institution approves an individual for a mortgage loan with the home being the security in the loan. So, if the homeowner defaults on his loan the lending institution has legal power to take the home, known as foreclosure, in order to recoup the loss. These types of loans are most common and generally individuals are completely aware that a foreclosure might happen if they do not meet their monthly payment obligations.

FHA Mortgages

An FHA mortgage is the same as a conventional mortgage with the same types of repercussions. However, the difference is that the Federal Housing Authority, FHA, insures the loan partially or in full. This is beneficial for certain individuals who have difficulty getting a conventional mortgage.

Purchase Money Mortgages

The purchase money mortgage is actually a mortgage that is approved in order to secure the loan approved to buy a specific piece of property. This makes sense if you consider the name because it is simply a mortgage that provides the money to purchase a piece of property. This mortgage would then become the senior mortgage and any other mortgages taken out considered junior mortgages. Because of this, the senior lender feels more comfortable because in the case of default or foreclosure the senior lender is paid off first.

Adjustable Rate Mortgages

The adjustable rate mortgage has different monthly payments as set forth in the agreement between lender and borrower. Generally, there is an initial period where the monthly payments are lower and then after the initial period is over the monthly payments take on a new payment rate, which is generally determined prior to the agreement. As such, the rates are “adjustable” before the loan is approved. These are great loans for individuals in medical or law school who won’t make a significant amount of money in their first years of practice, but will afterwards.

There are many other types of mortgages as well that include balloon mortgages, reverse mortgages, buy downs, shared equity mortgages and several hybrid mortgages as well. You should always evaluate your personal situation and which mortgage would work best for you. Of course, your loan officer might be of some help, but you should make yourself aware of all the mortgage loan options before you apply. By doing this you could save yourself a lot of money and headaches simply because you took the time to find the right mortgage for you.