Residential Mortgage
In today's home buying market, a residential mortgage is virtually a necessity. Escalating housing prices have made it nearly impossible for the average homebuyer to pay cash for a house. Consequently, there are now numerous types of lenders, all promising to create the ideal residential mortgage. Provided here is a brief buyer's guide to the residential mortgage.
Conventional Mortgage
This is the type of residential mortgage with which most homebuyers are
most familiar. Administered by a bank or dedicated mortgage lender, a
conventional mortgage is generally serviced in-house. Most conventional
mortgage lenders have a very strict set of guidelines for approval, making
it difficult or impossible for borrowers with poor credit or an unusual
profile to obtain financing.
A conventional residential mortgage may offer a fixed or adjustable interest rate. A fixed rate is locked in at the beginning of the loan period. The payments are the same each month, and at the end of the loan period, the mortgage is paid off.
An adjustable residential mortgage, on the other hand, has an interest rate that fluctuates (typically once per year). An adjustable mortgage typically provides a low fixed interest rate for a certain period of time (generally one to five years), before the rate fluctuation begins. Customers may also have the option of paying only the interest during this period. Although an adjustable rate mortgage can become pricey, the low initial rate makes it a good choice for some borrowers who plan to sell the home quickly.
Alternative Financing
There are now numerous alternatives to conventional bank financing.
Government-backed programs exist for borrowers in rural areas, those with
low incomes, and those who work in certain professions. Some dedicated
mortgage lenders focus all or part of their business on low-income
borrowers or those with poor credit. Some programs also allow a low down
payment and can be approved with less documentation than a traditional
loan. While some of these programs carry higher interest rates than
traditional bank financing, this is not always the case.
The Bottom Line
Homebuyers today have more options than ever before when choosing a
residential mortgage. Regardless of your credit profile and personal
circumstances, it is worthwhile to shop around to find the best loan
program. Mortgage brokers, who work with multiple lenders, can be extremely
helpful, but it is generally best not to tie yourself to only one broker. A
bit of legwork can result in significant savings.
