Can you afford to buy a home?
Do you think that you can’t afford a new home? Is the down payment taking forever to save? Is your credit less than perfect? None of these reasons should stop you from owning a home. Keep in mind that the most frugal options for homeownership usually require a good down payment and great credit, but at the same time, throwing away money on rent isn’t very frugal either.
There are several different types of mortgages to help most anyone get the home loan he or she needs.
The first type is the usual fixed rate mortgage. Fixed rate mortgage loans can range from 10-50 years, but most people choose a 30 year fixed rate mortgage. As the name implies, fixed rate mortgages stay the same every month despite the current interest rate.
In contrast, the adjustable rate mortgage has a fluctuating interest rate. This is beneficial because monthly payments might become lower as interest rates change. It is downright scary because monthly payment might also become higher.
Two types of mortgage loans that may seem tempting but are not frugal options include the Combo/Piggy Back Loan and the Interest Only loan. Combo loans are actually a first and second mortgage–one for loan for the down payment and one loan for the remaining (usually 80%) of the cost of the home. Getting the second loan for the down payment allows home buyers to get out of paying mortgage insurance. Sounds great, right? It’s great if you can’t wait, sure. But in the long run, it costs you more than you would pay if you saved the down payment yourself and didn’t have to pay interest on it.
The interest only loan is also tricky. Interest only loans give a home buyer between 5-10 years of paying only the interest on their mortgage. This results in a lower monthly payment for those years. The problem is that the interest rate on an interest only loan is going to be a bit higher and, in reality, the monthly interest payment only is not that much less than it would be to pay both principle and interest. Definitely not a frugal choice, but again, if you can’t wait to have a home it is an option that might make home ownership affordable.
If you’ve decided to wait and save check out these tips to help better your current place.
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