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Are you shopping mortgages and struggling to understand what products best fit your needs? To help clear up your confusion, we’ve listed the most common mortgage types along with their advantages and disadvantages. We’ve also provided information on who should consider each type of loan.

ITA18FXIBLOnce you’ve narrowed down the type of financing you’re after, contact a mortgage pro. They will walk you through the entire process and get you the best available deal.

Fixed Rate Conventional

  • Description: A fixed rate loan offers a stable interest rate amortized over the life of loan, which are most often set in 15, 20, or 30 years terms.
  • Advantages: Your monthly payment stays the same over the entire life of your loan.
  • Disadvantages: If interest rates drop after you’ve locked in your loan rate, you may be stuck with a higher monthly payment.
  • Consider If: You plan on staying in your home long-term and desire the security of a predictable monthly payment.

Adjustable Rate (ARM) or Variable Rate

  • Description: A variable rate mortgage or ARM usually offers a low introductory interest rate over a 3, 5, or 7 year term. After the initial-rate period ends, the interest rate fluctuates based on market trends.
  • Advantages: Introductory rates are often lower than rates for conventional mortgages, offering short-term savings. 
  • Disadvantages: If interest rates rise after your initial-rate period your monthly payments could go up.
  • Consider If: You’re confident you’ll be out of your home before the end of the initial-rate period or you plan to refinance.

Interest Only

  • Description: A borrower pays only the mortgage interest, in monthly payments, over a fixed term.
  • Advantages: Without paying principle, monthly payments are often less than fixed rate or adjustable rate loans.
  • Disadvantages: With Interest Only loans, the balance is often due in a lump sum after the initial period ends. This could mean significantly higher monthly payments or facing a large lump sum payment.
  • Consider If: You plan to live in the home for only a short amount of time or have confidence you can handle the larger payment down the road.

FHA Loans

  • Description: Allows buyers who may not qualify for a conventional mortgage to obtain financing with a lower down payment.
  • Advantages: First-time homebuyers or individuals who may not qualify for traditional funding have better access to home financing.
  • Disadvantages: Not everyone will qualify for FHA funding and even if you do, there may be restrictions on how much you can borrow or what types of property you can buy.
  • Consider If: You’re a first-time homebuyer or have low income and/or challenged credit.

VA Loans

  • Description: These loans are offered through the US Department of Veteran’s Affairs to eligible Veterans, active duty personal, or surviving spouses.
  • Advantages: VA Loans offer competitive rates, often with low or no down payments.
  • Disadvantages: As with FHA loans, the size of your loan may be limited.
  • Consider If: You’re a veteran, active duty personal, or surviving spouse.

Jumbo Loans

  • Description: Jumbo loans are for amounts exceeding $417,000 (or $625,000 in Alaska and Hawaii), which is the maximum Fannie Mae and Freddie Mac are willing to purchase.
  • Advantages: Jumbo Loans make it possible to purchase large homes and help finance home purchases in states with high home costs.
  • Disadvantages: Jumbo loans often require 20% down payments and interest rates can be .25-.50 higher than comparable conventional loans.
  • Consider If: You want to purchase a large home or live in a high-cost area.

Reverse Mortgage

  • Description: Reverse Mortgages are for seniors aged 62 and older with substantial equity in their property. With this loan, the lender pays the borrower a fixed monthly payment for as long as they live in their home.
  • Advantages: Allows seniors to convert their home equity into cash, which is often used for living expenses. The loans and interest don’t have to be paid back as long as the borrower lives in the home.
  • Disadvantages: Often an area of fraud by unethical lenders who prey on the elderly. If you’re considering a Reverse Mortgage, make sure your lender is reputable and the loan is federally insured.
  • Consider If: You’re retired and need extra monthly income.

Sometimes it seems as if you need to be a psychic to make money in the real estate market. And while that would certainly help, knowing when to put your home up for sale is more about understanding your local market than it is about magic. So with that in mind, here are four things to consider as you decide when to sell your home.

  1. Research Your Local Market: The media gives us the impression that housing is tied directly to the health of the American economy. While this is true in a broad sense (home sales tend to be good in strong economic times and bad in poor economic times), local factors also have a strong influence on sales. So even during recession, there can be pockets of hot sales activity. The key local indicator is housing inventory, which is a measure of supply and demand. For a market to be considered healthy, the inventory should stand at 4-6 months. That means it would take between 4 and 6 months to sell every house on the market. Anything less than 4-6 months is a sellers market, with a low home supply and competition between buyers. Anything more than 6 months is a buyers market, allowing consumers to be pickier with their purchases. The best way to understand you local housing inventory is by consulting local Realtors. They’ll have their finger on the pulse of your local market.
  1. Check Interest Rates: Interest rate are the biggest determining factor on the affordability of home loans. An increase of just a few points can translate into hundreds of extra dollars in payments per month. If interest rates are low or are dropping, that may spur more consumers to enter the Real Estate market and begin to swing housing inventory in the sellers favor. You can check current interest rates here.
  1. Consult Your Calendar: Data shows that homes sell faster if they’re put on the market between mid-March and mid-April. This is tied to the school calendar, as parents want to shop for home in spring and make a move once the school year ends.

  1. Run the Numbers: When you’re deciding to sell, it’s also important to understand your investment position in your current home. Check your payoff amount and compare it to the price qualified Realtors have set for your home. Once you have that balance, subtract excise taxes, realtor fees, and moving costs. What’s left will be your profit. And don’t forget, in competitive housing markets buyers won’t pay top dollar for homes in need of upgrades or major repairs. Those costs will come out of your asking price one way or another. A good realtor will help you understand what’s required to be competitive. Taken together, these numbers will help you determine what you stand to gain or lose through a sale.

While these tips are good indicators, there really is no perfect answer for when every person should enter the Real Estate market. Housing needs are so personal that even in a perfect market, a potential seller might decide to wait. In the end, it all comes down to what your family needs and the lifestyle you desire. When you understand those factors, and act accordingly, you’ll make much better decisions.