3 Types of Mortgage Options

What are the similarities and differences between the main 3 types of mortgage options?

Fixed Rate

Fixed rate mortgages are the most common. Interest rates stay the same throughout the life of the loan. Rates are consistent despite the market.

Like an adjustable rate mortgage, you will make simultaneous payments on the interest and the loan.

Adjustable Rate

With adjustable rate mortgages, rates change annually. You will likely be rewarded initially with a lower rate for taking a risk. You can even negotiate a cap for stability in rough market conditions.

But the fact remains, these payments are subject to change. This is also true of interest only payments.

Interest Only

As the name implies, an Interest Only mortgage allows you to pay off interest first, before addressing the loan itself. The problem is, your principal payment can rise after interest is paid. This option is designed for young professionals and families – people who’s financial influence is expected to grow in the near future.

Like fixed rate mortgages, these are relatively unaffected by market conditions.

Common Loan Questions and Answers for home buyers:

How does my credit score affect my rate?

Your credit score is an important factor in determining which programs and rates you are eligible for. Supreme Lending uses your FICO score, a summary of credit reports collected by Equifax, Experian, and TransUnion. Your credit score is not the only factor considered in your mortgage application. Other factors include your employment history, income, and the size of your down payment.

How much should I save for a down payment?

The average down payment ranges from 10% to 25%, but as a general rule, the more you can save, the better. Typically, the higher your down payment, the lower your interest rate and monthly payment will be. Some loan programs such as FHA or VA loans may allow a down payment as low as 0 to 5 percent, for those who qualify.

How much can I afford to buy?

If you are not quite ready to apply for a loan, use our mortgage calculators to determine how much you can afford. You can also speak with a loan officer online or by phone to help estimate which programs you are eligible for, without running your credit.

What steps can I take to prepare for buying a home?

There are many steps you can take, including saving up for a down payment, paying off debts, contacting a realtor, and applying for a loan. You should also keep good financial records (bank statements, W2’s, employment information, etc.) as these files may be needed at the time of your mortgage application.

What should I avoid doing if I’m preparing to buy a home?

If you can help it, do not make any major purchases such as a new vehicle. Do not change bank accounts, transfer balances between accounts, or close any credit accounts. Do not apply for new credit cards or max out your current credit accounts.

What is the difference between a Home Inspection and Home Appraisal?

A home inspection is an evaluation of the property’s condition, ordered by the buyer or the buyer’s agent. It costs between $350 to $500, and usually occurs within 10 days of the contract date (after buyer’s offer is accepted). A home appraisal is an evaluation of the property’s fair market value and physical condition. This is required, and usually costs between $350 to $500. Supreme Lending is required by law to randomly select an appraiser (after the home inspection is completed, if applicable).