Home finance in the real estate market requires buyers to make informed loan assessments and analyze the finance options available to finance a home purchase.
Following some basic evaluation steps will make the process go more smoothly and create the best outcome for buyers. This kind of evaluation should be taken in order to make the best decision on financing a home purchase. To start, potential purchasers should weigh the pros and cons of the two primary finance options available. These options are the fixed rate versus adjustable rate mortgage options. The difference? Interest rate and the way that rate operates or changes over a period of time.
Let’s start with a fixed rate mortgage. Financing a home purchase with such a rate means that the interest indicated and secured when the loan starts will be the same amount at the end of the loan – whenever you pay the loan off, refinance, or sell the real estate purchased. A fixed rate mortgage loan has no surprises. It is exactly the same, start to finish. However, this type of loan can be harder to obtain due to loan qualification standards, and it can also have a higher interest rate than the other main loan category, the adjustable rate mortgage.
An adjustable rate mortgage means that the interest rate on the loan will change over a period of time, whether every year or every five years for example. Short term, this type of loan can be a definite money saver as well as being easier to qualify to obtain. But, using an adjustable rate loan does include some risks. If you’re planning to stay in your home long term without refinancing, it may not be the best choice.
Some adjustable rate mortgages are considered hybrid loans, as they’ll start with a fixed rate for an extended period of time. After that period, like any other ARM, the loan will adjust and the rate will
Many adjustable rate mortgages begin with a fixed rate for a certain period. It’s after that initial loan stage that the rate will adjust at specific times. This type of loan is called a hybrid loan, as it is fixed – for a short time. For purchasers who plan to only stay in a property or refinance after a short period, this type of loan can indeed save money. Once the rate adjusts upwards however, costs for the homeowner rise too and must be considered before applying for this type of loan.
Of course the interest rate is just part of the mortgage payment, the principal balance doesn’t change. But when the interest rate rises, so does the homeowner’s payment.
Another popular buyer finance option, besides conventional fixed or ARM loans, and one many first time buyers employ, are FHA home loans. These government sponsored loans may require a smaller down payment and are easier to qualify for, which can be particularly useful for buyers whose credit is not perfect. These Federal Housing Administration loans are justifiably popular and well regarded in markets across the nation.
As to which option is best, buyers must consider long term plans, personal finances, and loan qualification capabilities. Regardless of which option chosen, purchasers should consider the pros and cons of financing a home purchase through each type of loan and thoroughly investigate what each lender can offer.