How to Choose the Right Type of Mortgage?

There isn't a single or simple answer to this question. The right type of mortgage for you depends on what you intend to use the loan for:

• Purchase of an existing home
• Building a new home
• Refinancing an existing mortgage

Some of the most common types of mortgages available today are:

• 100% Financing
• One Time Close
• Rate & Term Refinance
• Home Equity Loans
• Investment Property Financing
• Reverse Mortgage

100% Financing – No Money Down

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Financing 100% of the value of your home has become a very popular program over recent years. This loan is designed for home buyers with limited available cash. It allows you to purchase your new home with NO down payment, thus freeing up your cash for closing costs or other needs. This loan can be set up as one loan at 100% of your home value which requires PMI (Private Mortgage Insurance). To avoid paying PMI, you may structure your loan as an 80/20; which is a first mortgage provided for 80 percent of the cost of the home and the 'piggyback' second mortgage is for the remaining 20 percent. Of course you must be able to qualify for 100% financing. You may also choose a similar type of mortgage such as an 80/15/5 or an 80/10/10 which are both structured the same as the 80/20 except they require either a 5% or 10% down payment If you have questions about these programs or would like to get pre-qualified, please just give us a call.

One-Time Close

The One-Time Close product is a permanent loan consisting of construction and permanent financing combined into one loan and one closing, with lower closing costs. The type of projects that this type of financing can be used for include:

• New construction
• Major remodel projects
• Renovations
• Tear downs
• Pools and other home additions

The One-Time Close product is different from the conventional loan programs in that the borrower is responsible for the construction loan, is approved up front, and closes only once, at the beginning of the project. The biggest advantage to this program is the potential savings to the borrower as well as more control.
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Rate & Term Refinance

This has been a very popular choice for all homeowners the past few years as mortgage rates have declined steadily from about the year 2000 thru 2005. All mortgage programs are available to existing homeowners who want to lower their monthly payments. To determine whether the timing is right for you to refinance, you need to review your existing home loan, determine how much longer you plan on living in your house and analyze your financial goals.
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Home Equity

This is a specific type of refinance that allows one to receive cash from the equity built up in their home. For a primary residence one can take cash out for up to 80% of the appraised value of the home – for non-primary, up to 95%. This is a very popular alternative way to pay off high interest credit card debt, finance a major home improvement project and pay for schooling or just to consolidate debt. The main advantage to this type of loan is that mortgage rates tend to be the lowest interest rates of any type of loan available and the interest is tax deductible.
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Investment Property Financing

An investment property is any property other than a primary residence or a second home. These properties are typically purchased and used as rental properties or “fixer-uppers” that are in turn sold for a profit. Typically, you will find all of the same type of loan programs available on an investment property; however, there are more limitations than on conventional home loans. For example, the lenders may not finance as high of a percentage of the home value… most will only finance a maximum of 90-95% of the home value. There are also more stringent requirements on documentation and credit scores. If you are interested in financing an investment property please contact us and we will be happy to answer any questions you may have.
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Reverse Mortgage

This is a fairly new product in Texas. This program is geared to retirees who own their house free & clear, have little disposable income and need additional monthly income to make ends meet.  Due to the extremely high costs associated with obtaining this type of loan, this program is only right for those who have exhausted all other means of obtaining the money they desire.
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Now What?

Once you have identified the purpose of the mortgage then there are other factors to take into consideration in order to identify the loan program that best suits your needs:

• Your current financial picture.
• How you expect your finances to change.
• How long you intend to keep your house.
• How comfortable you are with your mortgage payment changing.

Now, before we get into the type of program you may consider, please note that you may marry any TYPE of mortgage with just about any PROGRAM. For example, you may choose a Fixed Rate Mortgage for either a Refinance or a Purchase. Although there are a multitude of programs available to you, the most common loan programs are:

• Fixed Rate Mortgage
• Adjustable Rate Mortgage (ARM)
• Government Programs (FHA & VA)
• Interest Only

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Fixed Rate Mortgages

The most common type of mortgage program is the kind where your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Fixed rate fully amortizing loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. The most common fixed rate loans are 15 year and 30 year mortgages.

During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. A typical 30 year fixed rate mortgage takes 22.5 years of level payments to pay half of the original loan amount.
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Adjustable Rate Mortgages (ARM)

These loans generally begin with an interest rate that is below a comparable fixed rate mortgage and could allow you to buy a more expensive home. However, as the market changes so do the variances between adjustable mortgages and fixed.

Please note, however, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up too. However, if rates go down, your mortgage payment will drop also. All adjustable rate mortgages have limits on how much the rate can fluctuate during any given period, thus protecting you from very large increases.

There are also mortgages that combine aspects of fixed and adjustable rate mortgages – starting at a low fixed-rate for seven to ten years, for example, and then adjusting to market conditions. Ask your Liberty Mortgage USA professional about these and other special kinds of mortgages that fit your specific financial situation.
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Government

The two major types of Government Loans are FHA (Federal Housing Administration) and VA (Veterans Administration). The FHA & VA guarantee certain loan programs and insure loans that are made by approved lenders. The FHA program allows low income and/or low down payment borrowers the opportunity to purchase a home that they may not otherwise qualify for under conventional loan programs. The VA program is for United States Veterans and similar to the FHA program allows a veteran to buy a house whereas under normal circumstances one may not qualify. 
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Interest Only

With an interest only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term, usually five to ten years. After the end of that term, you may either choose to refinance, pay the balance in a lump sum or start paying off the principal balance. In this case, the payments become principal plus interest amortized over the remaining life of the loan. You may utilize the Interest Only option with just about any typical loan program such as 30 year fixed or 5 year ARM. These loans can be risky and we suggest you consult with a qualified loan officer in order to become fully informed of the advantages as well as the risks.

The best way to find the "right" answer is to discuss your finances, your plans, your financial prospects and your preferences frankly with a mortgage professional at Liberty Mortgage USA so please give us a call and let us start working for you today!
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