![]() The benefits: You’re paying off your home early by making extra payments each year. The idea with this type of mortgage is to make extra payments toward your mortgage for a predetermined amount of time (weekly or every two weeks). The bottom line: Why would you risk your already paid for home for a little extra “income” in your pocket? Avoid this mortgage option like the plague! But with a reverse mortgage, the total rises over time as your interest accrues. With a traditional mortgage, the grand total goes down over the course of the term. This mortgage is a bad idea because you’re putting a paid-for home at risk-plus the fees are horrible. The negatives: With this type of mortgage, you sell off your equity in return for payments being made back to you. The benefits: The lender is paying you monthly. The bottom line: The intentions behind this type of mortgage are good, but the plan is all wrong.Ī reverse mortgage is when a homeowner borrows against the equity of their home and gets monthly, tax-free payments from the lender. VA mortgages also come with a ton of extra fees and higher interest rates than conventional home loans.ĭave Ramsey recommends one mortgage company. The negatives: When you purchase a home with zero money down and things change in the housing market, you could end up owing more than the market value of your home. The benefits: A VA home loan is a great idea in theory! This type of mortgage is backed by the Department of Veterans Affairs and allows our veterans to buy a home with virtually no down payment. These types of home loans are used to make it easier for our military veterans to become homeowners. The bottom line: If it sounds too good to be true, it usually is. ![]() If you’ve borrowed $200,000, that’s an extra $200 you’re paying each month. That might not seem so bad on the surface, but here’s the deeper truth: PMI can tack on an extra $100 a month per $100,000 borrowed. The negatives: You’re required to keep the private mortgage insurance (PMI) for the full term of the loan. It only requires you to have 3.5% on hand for a down payment. The benefits: An FHA home loan can make it easier for someone to own their first home. These types of mortgages are designed specifically with the first-time home buyer in mind. Don’t finance your home with an ARM and take on that kind of risk!įederal Housing Administration (FHA Loan) The bottom line: This is one of the worst types of mortgages out there. But as many homeowners learned in the economic downturn, when your rate gets higher or you lose your job, the payment can quickly become too much for you to afford. Many people find this type of mortgage appealing because they can qualify for more home. And then it’ll keep fluctuating throughout the life of the loan. The negatives: Sure, the initial low interest rate is appealing-but it’s going to go up eventually. ![]() ![]() Their intention here is to transfer the risk of higher interest rates to you and, in return, the lender gives a lower rate up front. But that’s just how they lure in potential home buyers. The benefits: ARMs offer a lower interest rate-at first. A home should be a blessing to your family-not a long-term financial nightmare! If you’re about to sign on the dotted line for a mortgage, there are a few things you need to know first.Ħ Types of Mortgages to Avoid Adjustable Rate Mortgages (ARMs)Īn ARM is a mortgage with an interest rate that changes based on market conditions. It’s a good idea to know what types of mortgages are out there and which ones you need to avoid. It may sound off-the-charts crazy, but people do it every day! If that’s not a feasible option for you, the next best thing is a 15-year fixed mortgage (more on that later). No one wants their dream home to become their worst nightmare because they find out they couldn't really afford their house.ĭave’s favorite way to pay for a home is with cash. It may be tempting to dive headfirst into the types of mortgages that let you buy a home with next to nothing down and the lowest monthly payment. Buying a house is a huge step, especially if it’s your first home.
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