Buying a home for the first time can be overwhelming. You must consider the location, type of home, realtor, closing costs and if you live in the state of New Jersey you’ll also have to consider NJ mortgage loans. The type of mortgage loan and interest rate you pay is extremely important as it will determine your monthly as well as long term costs. Here are some common mortgage loans you will encounter when buying a house in New Jersey.
Interest Only Loan
This is a type of mortgage loan where the buyer only has to cover the interest from the loan’s principle. Payments for interest only loans tend to be low and are preferred by those purchasing a home for the very first time as it gives them the ability to make lower payments while they grow their savings. The rest of the loan must be paid off eventually but it is possible to renew it.
Fixed Rate Loan
Also known as a fixed rate mortgage, these loans lock in a set payment that will remain unchanged for a specific period of time, meaning it won’t go up or down. These types of mortgages typically last 10 years and are a way to ensure that mortgage payments will not increase during that time period.
Also known as the Federal Houses Administration Loan, this loan is provided to lower the risk of financial loss should a borrower default on the payments. The biggest advantage of this type of mortgage loan is that qualifying for it is easier since the down payment required is low and your credit score doesn’t have to be perfect in order to qualify.
Also known as a balloon mortgage, this is a type of loan which is short term in duration. It requires the borrower to make consistent payments within a specific schedule, after which the total balance must be paid within a short duration. An example of this would be a balloon loan where the borrower pays only interest for ten years, after which the total payment (the balloon) must be paid in full. The advantage of this loan is that the payments are fixed and the interest tends to be low. However, the great disadvantage of balloon mortgages is that you’d better be able to pay off the entire loan once it matures.
This loan is offered though the Veteran Affairs Department and is designed for members of the U.S. armed forces. While the Veteran Affairs Department does not make loans directly it will back loans which are handled through private institutions such as banks or mortgage firms for qualifying veterans.
Also known as an adjustable rate mortgage, this is a controversial loan which is the opposite of a fixed mortgage. Its controversy lies in the fact that the mortgage can be adjusted regularly based on existing market conditions. The initial interest and terms of these loans are quite friendly but if market conditions become unfavorable homeowners could quickly find themselves underwater.