There are three types of loans available for your purchase of real estate. You can expect each lender to have different qualification requirements depending on your own financial ability.
Adjustable Rate Mortgage (ARM)-have a mortgage interest rate that changes over the life of the loan, usually tied to an index and can adjust as often as once a month or as little as once a year. The type of loan carries more risk to the borrower, as the interest can go up frequently over the life of the loan.
3, 5, 7, or 10-year fixed rate loans-have a fixed interest rate for a period of time usually three, five, seven or ten years, then turn into an ARM which adjusts once a year. Once the loan changes to an ARM the payments fluctuate and the loan is amortized-meaning set to pay off for the remaining duration of the loan. This type of mortgage gives borrowers a steady payment for a period of time, usually with an interest rate lower than a 30 year fixed rate mortgage. This is a good option for borrowers who plan to sell or refinance their home within 5-8 years who want some stability in their payments. Some of these loans also offer an interest only option, meaning that no principal is paid on the loan for a period of time.
Fixed Rate Mortgage-has a fixed mortgage payment for the loan’s entire duration-usually 30 years. A portion of the mortgage payment goes to interest and the other to principal (the amount borrowed). Payment to principal is smaller in the earlier years, and increases over time.
To get a better idea of what is available to you, please contact a mortgage broker or direct lender. I would be happy to provide you some referrals; don’t hesitate to ask me.