Home Purchase Loans

By: Melina Menny
Submitted: 2008-07-01 13:11:25
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Choosing the Right Home Purchase Loans to Meet Your Needs

Understanding home purchase loans is essential to getting you in the house of your dreams. With so many options, deciding which ones are right for you is a good idea before you begin choosing loan officers to meet your needs. Learning the basic elements of home purchase loans is a step in the right direction.

The first thing you should know so you will have less fear of venturing into a home purchase loan is that they function pretty much the same as does the credit card that you have been using for quite some time now.  The same basic procedures and the same general interest calculations are a part of any mortgage. In this case, though, you are dealing with a bigger purchase than the purchases you make on your credit card.

There are almost as many different home purchase loans as home purchase loan companies available in the market; each company will offer you an “additional punch” just to make sure that you conduct your business with them.  Nonetheless, and regardless of the “additional punches” that they can offer you, you need to consider and think carefully about what company and what type of mortgage loan suits your interest, preferences and lifestyle best.

Fixed Rate Mortgage

This type of home purchase loan will provide the homeowner with a fixed interest rate for a specific period of time. Usually available in fifteen, twenty, and thirty year formats, this type of loan is easily one of the most popular on the market today.

The fixed rate can be a good thing if the markets stay the same or if they increase, but they can be frustrating if the interest rates suddenly plummet.  Regardless, they can certainly be helpful if you need a single payment amount that you can count on from month to month.

Adjustable Rate Mortgage

Opposite to the fixed rates, a home purchase loan that has adjustable rates will react to the fluctuations that can or will affect the markets.  An adjustable rate home purchase loan will remain fixed for an estimate period of time that can be 1,3,5,7, and 10 years, and then be adjusted every year from that moment on.

The downside of this type of home purchase loan is that it can happen that when the time of adjusting your interest rate comes, the market can go very high, and therefore your payments will also climb making them bigger. The benefit, though, is that all adjustable rate mortgages come with payment caps, so in most cases, you’ll never pay more than a 2% increase on your home loan.

Interest Only Mortgages

Though it might seem that this means that all you will be paying are the interest fees on your home purchase, this is not the case.  The interest only home purchase loan will give the homeowner a specific period of time in which he can pay only the amount that would correspond to the interests of his home purchase loan; however, this amount and time period will not suffice for him to fully payback all the interests.  As a result, he will be forced to pay the interest and the basic capital at the same time as soon as the “interest only” period has ended.

This can be a good thing since it will give the homeowner candidate a lot more room to seek for the ideal home. However, if you don’t expect to see a dramatic increase in your income in the next five to seven years, it’s probably best to find another loan product.

Balloon Mortgages

Balloon home purchase loans will allow you to pay a small amount of your home purchase loan during a specific time-period; and after this has expired, the remaining of the loan will be required to be paid in full.

If you are purchasing a home that will eventually be too small for your needs or if your business company or work makes you move constantly and you will end up selling the house you are living in, a balloon home purchase loan can be the right thing for you.

Assumable Mortgages

This is a great chance and opportunity in cases where you need to change house and the dream house you have found has an owner who also has a mortgage that he is still paying.  However, the downside is that you will be required to make a substantial payment that will cover the difference between the home purchase loan and the actual (current) cost of the home.

Still, you will need to take a moment or two to consider if you are willing to take the home purchase loan “as is”, that is, trusting in the way the current homeowner made the decision of signing for the home purchase loan.  This can be a sought deal if the current homeowner is a relative and you are willing to take in on his current home. 

Nevertheless, make sure that you understand the entire contract on the  Home Purchase Loan  and that you are completely and totally okay with its terms; if you are not, then most likely you should not consider this home. 

Low Interest Rate Loans

This is one of the favorite “additional punches” that  home purchase loan companies offer potential homeowners; however, to find the right one, the homeowner (that is you) needs to do extensive research.  Low interest rates are great, but not if they come at the price of higher closing costs or extensive monthly payment commitments.

High-end

When a homeowner is seeking a dream home that is valued in more than the standard maximum amount or that is located in a high-end area, he might have to pay over the 50% of the total amount of the value on the house or seek for a high-end  home purchase loan

Reverse Mortgage

While these are not the way to purchase a home in most cases, reverse mortgages are offered by most lenders. You have to be at least 62 years of age to qualify, and your current mortgage must be nearly paid off. A reverse mortgage gives you access to the cash you currently have in your home, and if you’re looking to invest that cash into another property, it can be a good way to get a return on your investment.

However, in this case, you are still responsible of any and all other expenses involved in your current home including taxes, insurance, and repairs.

Article source: Expert Articles