When purchasing a home, the most important factor is how much the total purchase price of the property is going to be. If you are looking at homes in the location of choice, that have design characteristics and amenities that you prefer, you aren’t going to go through with a purchase if you simply cannot afford the home. Regardless of how much you love it or how perfect it is for you, if the price is not right, the sale is not going to happen. Many people think they are going to be wedged in to a few certain boxes when it comes to finding the right lending as well, thinking that there is a “one size fits all” mortgage that they will need to qualify for in order to purchase a home. This line of thought, however, is not true. There are several mortgages and refinance options that are less common that are built to fit a certain kind of person, and that don’t bunch home buyers into the 30 year mortgage box.
If you are a homeowner and you no longer have payments on your home, you might qualify for a cash-out mortgage, or a reverse mortgage if you are 62 or older. These mortgages are both available only to those who either own their home or who have equity in their home. A reverse mortgage is one that allows homeowners over the age of 62 to receive a monthly payment that comes from the equity in their home. The repayment of the loan is deferred until the home is sold or until the homeowner dies and the deed on the home changes hands. This is a good loan for those who are older and who need a little extra money to help pad their retirement funds. The repayment of the loan falls on the shoulders of whoever sells the property, which makes it easy to repay as it comes directly out of the money made on the sale of the home.
If you aren’t at least 62 years old, a cash-out refinance might be a better option for you. Explained simply, a cash-out refinance is one that gives you money back at closing and possibly even lowers your interest rate. The only way you can qualify for this kind of loan is if you owe less on your home than it is worth. Let’s say, for example, that you owe $50,000 on a $150,000 house. You will be able to refinance your remaining loan amount and receive a check for any amount of money that you wish, let’s say another $45,000. If your closing costs were $5000, the total loan amount on your home is now $100,000. You can use the loan proceeds for any purpose.
Another kind of mortgage is a 5/1 adjustable rate mortgage (ARM). This mortgage locks you in at a very low rate for the first five years of your loan, and then will automatically adjust to the market interest rate each year and thereafter until the end of your loan. People choose this loan because it gives them a low interest rate, and gives them five years to sell their home or refinance, or roll the dice with a fluctuating interest rate.
Choosing the right kind of mortgage or refinance is just as important as finding the right house. Making sure that you are able to afford your property and that you get a good rate on a mortgage is the best way to build security for yourself and ensure that your family always has a safe place to come home to. Consider what kind of loan works best for your financial situation before you buy and find out how much you can save by considering a variety of different loans.