What Type of Mortgage is Best for Me?

CMS_4114_60017_XA recent Bloomberg report listed 15 small lending firms that are offering slightly riskier mortgages. They may come with higher interest rates and larger down payment requirements and they may not be backed by the government.
As the larger banks tighten their credit standards over the last few years, smaller banks and local community based banks are starting programs for borrowers who have higher debt burdens or who had sold a home for less that the outstanding mortgage. Making smart loans to people who don’t fit in the mold isn’t done by all banks.
Some lenders are working with debt-to-income ratios up to 55 percent, and interest-only loans when borrowers have “high disposable income” or “high income potential” due to their line of work. Some portfolio lenders have loan products that allow for individuals with damaged credit to purchase a home well before the standard waiting times.
My experience in Sarasota, Fla. is that there are some community banks that will tailor loans for individuals with assets. These portfolio loans allow the bank to be flexible enough to provide different structures to individuals who don’t fit the guidelines of the larger banks. Some smaller banks in our area are many times the first to provide new programs with down payment assistance provided by community programs.
According to “The Mortgage Professor” who has developed decision rules that indicate the circumstances under which each of the major mortgage types should be selected, choosing a fixed rate mortgage over an adjustable-rate mortgage requires some planning based on current needs and future projections.
If you  expect to have your mortgage longer than 12 years a fixed rate is the best choice. An adjustable-rate mortgage will offer lower payments in the early years but carries with it the potential of sizeable payment increases and unless you have the expected increased income it’s a risky decision.
A 30 year-fixed-rate mortgage is a good choice if there is no other reason to choose otherwise. A 15 year-fixed-rate mortgage makes your payment double and you are mortgage-free in half the time.
Adjustable-rate mortgages, ARMS, are written to base the initial rate on a set number of years and a yearly adjustment. A 5/1 rate has the lowest percentage with the lowest payment. If the borrower decides to stay in the house for more than 5 years the worst case is that at the payment will increase beyond affordability.
The 5/1 ARM is a good choice if you are sure to very certain that you will not have the mortgage longer than 5-8 years and you can bear the increased payments.
The 7/1 ARM is a good choice if you are sure to very certain that you will not have the mortgage longer than 7 – 10 years and you can bear the increased payments.
If you need a creative lender of just someone to help you make a decision about which loan product fits you best, call me for a referral at 941-726-2227. And don’t forget to visit my website to start your search for a new home.

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