Finding a Mortgage That's Right for You
When considering a mortgage, you should shop
just as carefully as you do for a car or anything
else you buy. Getting the lowest possible rate and
fees can save you many thousands of dollars over the
life of the loan. Your Illinois REALTOR® can help
you find responsible lenders that make fair and
affordable loans.
Buying a home can be one of the
most important and exciting decisions you make in your lifetime.
Oftentimes though, this decision is paired with the daunting task of
choosing a loan that is right for you from a pool of options. Although
it is useful to have choices, learning the basics of home loans and
understanding which mortgage fits your budget can be the key to securing
your satisfaction with your new investment.
One of the keys to success
is getting an affordable home loan with fair terms and reasonable costs.
Homebuyers need to do their homework first to learn about the different
types of loans on the market and to select the one that is in their best
interest. They need to check their credit status and work with their
REALTOR and a reputable lender to determine how much house they can
afford.
For most consumers, the
traditional mortgage is a good option. Traditional mortgages are usually
insured by private mortgage insurance companies and tend to have low
down payments. Private mortgage insurance adds a small cost to your
financing, but it allows you to buy a house with a lower down payment.
The lower the down payment is, the higher the mortgage insurance will
be. Mortgage insurance helps the lender recover some of the losses
incurred in case you stop making payments on the loan.
A fixed-rate mortgage
maintains the same interest rate over the lifetime of the loan. Many
consumers prefer this mortgage option for its stability in terms of
budgeting and planning. Fixed-rate mortgages most commonly come with 15-
and 30-year options, but other lengths are available. These short-term
loans come with a lower interest rate and higher monthly payments to
encourage consumers to pay the loan back faster.
The adjustable-rate
mortgage (ARM) generally has a lower initial interest rate, but the rate
changes along with mortgages payments throughout the life of the loan.
This mortgage option works well for buyers who only plan on being in the
home for a short period of time or those who are financially stable
enough to handle sudden payment increases. The most common ARMs fix the
initial rate for three, five, or seven years. Before deciding on an ARM,
you should ask the following questions:
As the rates on
traditional mortgages continue to fluctuate, some are turning to
specialty mortgages to “stretch” their income in order to qualify for a
larger loan. Like ARMs, specialty mortgages begin with a low
introductory interest rate, but monthly payments greatly increase
towards the future of the loan. Common types of specialty mortgages
include: interest-only, negative amortization, option payment ARM, and
40-year mortgages.
It’s in a consumer’s best interest to learn the ins and outs of these
specialty loans, which can pose a greater risk that you won’t be able to
afford the mortgage payment in the future.
In addition to
conventional mortgages, special mortgage programs are available. One of the safest and most affordable types of
mortgages is the Federal Housing Administration (FHA)-insured mortgage.
The FHA mortgage insures homebuyers with less-than-perfect credit and
offers low down payment options, a loan at reasonable cost and help with
mortgage payments if needed. The Rural Housing Service (RHS), and the
Veterans Administration (VA), also provide insurance for home mortgage
loans.
First-time homebuyers in
Illinois may qualify for low-cost loans through the Partnership for
HomeOwnership’s Rural Initiative, Quincy Initiative and HomePower
Mortgage Assistance programs. Learn more at
www.pfho.org.
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