Your Comprehensive Guide to Mortgages
No matter if you’re a seasoned real estate veteran, or a first-time homebuyer, navigating the mortgage process can be overwhelming. As your trusted local real estate experts with years of experience, we can help you!
Read through our guide of frequently asked mortgage questions to help you determine which mortgage option is right for you.
The 6 Basic Types of Home Financing Options
Though the specifics of mortgages can make it feel like there are thousands of options available, here are 6 of the most common mortgage types. For a better understanding of what each one entails, read through this helpful guide.
Fixed-Rate MortgageA fixed rate mortgage is a mortgage that has an interest rate that stays the same throughout the life of the loan.
- Your principal doesn’t change
- Your interest payment doesn’t change
- Easy to predict and budget for
Adjustable-Rate Mortgage (ARM)An adjustable-rate mortgage is a mortgage with an interest rate that may change periodically based on outside circumstances of the lender.
- Initial interest rate may be lower than a fixed-rate mortgage
- After the initial period ends, the rate may fluctuate
- Have caps to limit drastic changes in rates and payments
- Unpredictable and difficult to plan a budget around
A VA loan makes it easier for veterans to get financial assistance buying a home.
- Requires no down payment or mortgage insurance
- Guaranteed by the Department of Veteran Affairs
- Easier to qualify for than a conventional mortgage
FHA MortgageA FHA is loan guaranteed by the Federal Housing Administration that generally has a lower interest rate and more inclusive qualifications.
- Pre-set spending limits
- Amounts are set by the median prices of different cities within a particular area
- Only 10% down is required (sometimes 3%)
- rotects lenders if borrower defaults on their loan
Two-Step MortgageTwo-step mortgage loans are long term loans that have an initial rate period, and when that expires your rate is adjusted for the remaining life of your loan.
- Usually called 5/25s and 7/23s
- Fixed interest rates for the first 5 or 7 years; then change to convertible or nonconvertible loans
- Convertible: converts the loan to a fixed loan for the remaining 25 or 23 years
- Nonconvertible: converts the loan to an ARM
- Both are 30-year loans
- Riskier than fixed rates, but less risky than ARMs
Shared-Appreciation MortgagesWith a shared appreciation mortgage, the homeowner agrees to share a portion of the profit earned as the home’s value increases (appreciates) over time.
- You receive the tax benefits
- Risky for the lender— they don’t make money unless you do
- If home increases greatly in value, you’ll lose a lot of profit to the lender
- Very uncommon
How to Choose the Best Mortgage
Determining the right mortgage option for you can be overwhelming, however considering key factors like your current income, your expected future income, major liabilities and assets should help you pick the perfect payment plan for your lifestyle. If you need more help choosing, consider these questions:
- Do you want to pay the same amount each month?
- Can you afford a higher down payment?
- How long do you expect to live in this home?
- How high of a priority is building equity?
The Importance of Getting Pre-Approved
Avoid falling in love with a home you can't afford by getting pre-approved for a mortgage! Working with your lenders and setting realistic expectations for your budget will help you find a dream home with payments you can make without struggling. We're happy to provide you with recommendations of trusted lenders in the greater Pittsburgh area.
Let Us Help You with the Details
Buying a home can be extremely intimidating, but that’s what we’re here for! With over 50 years of combined real estate experience in the greater Pittsburgh area, my team and I are happy to help you make the tough decisions when it comes to buying a home.
Contact us today and we can help you in-depth with your mortgage options, recommend a trusted lender and help find listings in your price range. Need more information? Take advantage of our mortgage planning and home-buying resources.