If you were going to buy a house, what is the safest mortgage to have and

[GreenPartyVoter]

why? Is there a bank or company that has a better track record than others? (Small local banks apparently sell these loans off.)

And does anyone here have experience with a construction loan?

[BridgeTheGap]

1. Fixed rate. Many of those in foreclosure ended up there when their adjustable

rate loans went up substantially.

[sinkingfeeling]

2. Get only a fixed rate mortgage. If you can, go for either a 15 year or a bi-weekly payment to save

tens of thousands of dollars in interest.

I truly disliked my construction loan arrangement. You must constantly ask for a 'draw' against the loan to pay your contractors, the bank can tell you what it wants done (like paint the exterior now), and you have to be extremely careful when it is 'rolled' into a mortgage.

[Juneboarder]

11. 15 year?

My experience has shown me that a 30 year is better since it results in a smaller monthly payment that is required each and every month. Of course, I also suggest making at least one additional payment each year to bring your length of financing down from the 30 year mark. The smaller monthly payment would be beneficial in times of unemployment or other issues that might cause financial stress.

I would also try for an FHA loan at this point... seems to be the majority of the loans being done now, anyways. FHA offers the 203(k) loans for homes needing rehabilitation. Here are two links to HUD's website on 203(k) loans:
http://www.hud.gov/offices/hsg/sfh/203k/sfh203kc.cfm
http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

Just my two cents on the matter :)

[sinkingfeeling]

14. I just don't like paying interest to banks. On a $150,000 loan , one saves $76,815 in interest

charges by getting the 15 year mortgage. With a 6.5% rate, that savings goes up to $106,579.


http://michaelbluejay.com/house/15vs30.html

[Juneboarder]

16. I totally agree with you.

However the payment on a 15 year mortgage is substantially higher than that of a 30 year mortgage. The 30 year mortgage gives you the option to pay less in the event that something arises and you cannot afford the 15 year mortgage payment...

With unemployment numbers at an all time high, I would always opt for the smaller payment. One cannot guarantee that just because they can afford the higher payment today, that they will be able to afford it a year from now.

[Ishoutandscream2]

25. Maybe sort of split the difference, Look at a 20 year

When I refinanced eight years ago, I had a 30 year note. The 15 year quote was substantially higher, but the 20 year was not too significantly higher.

[Juneboarder]

33. I agree...

pay off the mortgage ASAP. ALWAYS pay more than your monthly payment to be ahead and pay down quicker. However, with our shaky economy that we are in, I would still suggest a 30 year fixed. That's a much easier nut to cover if you become unemployed for any reason at all. When unemployed, every dollar counts and I guess one cannot truly relate to that unless one has worn the unemployment hat long enough.

[dmallind]

3. No need to go beyond a fixed rate mtg

Interest rates are at their lowest for 50 years, so an ARM gains you nothing but risk. 15yrs are a bit cheaper if you can afford it, but almost all 30yrs can be "turned into" shorter term loans by prepaying principal on a monthly basis. You won't get a lower APR, but you'll save major $$ on interest.

No construction loan experience here sorry.

[Statistical]

4. 30 yr fixed*. If you can't afford it on a 30yr fixed then you can't afford it.

Construction loan can be a 30yr fixed but you are going to pay a premium. Bank is taking the risk that the house will never get built.

Fraud, incompetency, bankruptcy of builder, etc.

If you can't afford it on a 30yr fixed then you can't afford it. All the liar loans, reverse amortization loans, arm, option arms, and all that other financial BS did is hide the simple fact that the loan/house was unaffordable.

Take your current rent subtract 10% and look for a house where your mortgage, taxes, and insurance equal that amount.


* Only other option is 15 yr fixed but for most people just starting out the payments (roughly 50% higher are simply not affordable). Even if you COULD afford a 15yr fixed it may make sense to get a 30yr fixed and just make larger payments. That way you have the flexibility to drop to your "real" payment if things get tight.

[LynneSin]

5. If you can't get fixed rate then you're not ready for a mortgage

Trust me on this one. These people jumped at Adjustable rates because they were so thrilled at cheap mortgage payments that they didn't see the big picture that one day those rates would go off the deepend.

[Fast Dude]

6. Fixed rate...prime if your credit is good enough

Do not go over 15 years. The difference in monthly payments between 15 and 30 years is about 21% more a month, but can literally save hundreds of thousands (depending on the cost of the property).

[dmallind]

9. A 30 yr allows flexibility and can be shortened however by principal payments

I looked at 15yr loans and while I was by no means stretching it made more sense to me to be able to choose when to pay extra rather than be forced to.

[Juneboarder]

12. GMTA! :) ~nt

[TwilightGardener]

7. Tough to get a construction loan right now, unless you have a lot

of cash on hand, or if you're building somewhere pretty nice that has held value--because banks usually only lend 80% of appraised value on the land plus finished build, and values are down almost everywhere. This means the loan may or may not cover the cost of construction, so you will need to make up the shortfall, and you also may not have "instant equity" the way new construction used to have. Plus, many banks want 10% contingency reserve held in the bank, in addition. If you don't have that much cash, then try an FHA construction loan.

[phantom power]

8. Fixed rate. Anything else should be illegal, IMO.

[napi21]

10. We had a construction loan years ago when we built our own house.

It's basically a pot of $$ that you draw from as you buy materials to complete the house. I know ours had a time limit before it was due in full so had to be converted to a regular mtg.I don't know how you plan on building your house. Are you planning to do all or most of the work yourself or do you plan on hiring different contractors to do it all? Make sure you borrow enough $$ in the const. loan to complete the house because you won't be able to convert to a std. mtg. until the house is completed & inspected.

I would NEVER get anything but a fixed rate mtg. Noone can ever predict what rates are going to do in the future, and the variable rate mtgs have already put many people out on the street when they reset. I'd also stay away from the balloon mtgs unless you have a pot of $$ somewhere that you KNOW you will be able to pay that balloon payment when it comes due, and very few people do.

[Bitwit1234]

13. Accordingly to republicans

Freddie Mac and Fannie Mae are the all encompassing cause of the mort age meltdown, the wall street mess and big banks fraud...didn't you all know that so stay away from them....you hear.

[slackmaster]

15. You can't count on any lender not to sell a loan off

Fixed rate.

[Gormy Cuss]

17. Nearly all of the banks sell them off, but if you trust your local bank talk to them first..

A thirty year, fixed rate, with no pre-payment penalty is the safest product for someone who's a first time buyer because the monthly payments are relatively low yet you're always paying a little something on principal. If you can swing it, a 15 year fixed rate loan is even better because you are reducing the principal even faster and the difference in interest is substantial but as others have noted, the payments are higher and that makes it tougher to get through lean times. In a few years you may feel more comfortable swinging the higher payments and you can refi to a 15 at that time.

It's much harder to get construction loans these days if you don't have a lot of assets, but again ask at the local bank or mortgage company.

There's a huge mountain of paperwork involved. Since you're in ME count on using a real estate attorney for the closing and ask everyone you know for recommendations. It's a small fee relative to the transaction but it gives great piece of mind.

[T Wolf]

18. The small local bank we patronize DOES NOT sell off its mortgages, or home eq loans either.

But, to answer the question - the best mortgage is one that you can easily afford to pay. A fixed-rate one is better than one of the adjustable con-jobs - which NEVER seem to go down.

Instead of stretching to buy the biggest, most expensive building that you hope will (and need to) escalate in value at an unrealistic rate, why not buy a home for your family?

You know - a roof-over-your-head kind of thing.

Just because some bankster will loan you money that requires 40% of your pre-tax income to pay off each month, it does not mean that you have to keep up with the richer people across town.

Our mortgage payment is affordable, even if one of us loses our job. That's because when we bought our second home, we only "moved up" a minute amount. Hell - car loans that I see cost more than my monthly mortgage payment.

[MadHound]

19. Fixed rate, thirty years. Pay a downpayment of at least ten percent of the house,

Get an escrow account to take care of taxes and insurance. If you want to shorten that thirty year note, pay an extra ten percent towards the principle every month, ie if your monthly payment is $1000, throw in an extra $100 every month paying down the principle. You will cut your thirty year note to a twenty year note.

As far as banks, go with a credit union or small banks, not all of them sell off your loan.). Good luck.

[taught_me_patience]

20. I'd get a 5/1 interest only loan

The interest will be a lot lower and you can pay down the priciple faster. If, for some reason, you get into financial trouble, the payments will be lower.

[sinkingfeeling]

21. Pray tell, how does one pay down a principle faster if one is only paying interest?

http://www.bankrate.com/brm/news/mtg/20020620b.asp

Financial advisers don't recommend interest-only mortgages to regular wage earners who take out moderate-size home loans and don't have a strategy for investing the savings.

With an interest-only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term. After the end of that term, usually five to seven years, you either refinance, pay the balance in a lump sum, or start paying off the principal, in which case the payments jump skyward.

[taught_me_patience]

22. You can still pay priciple with an interest only loan

you just have the option not to. Also, if the interest is only 3% or so, you can pay more priciple quicker than if you had a 30yr fixed.

[Juneboarder]

23. These are the types of loans that got people in trouble...

I am one of them. That 5 year term you are talking about is great, assuming the market appreciates.

[taught_me_patience]

24. The ones that really killed were the negative ammortization

option arms.

5/1's are great because after five years, the usually revert to a one year adjustable based on libor. The one year libor has been super low for the last 10 years and not likely to go higher for the forseeable future.

[Juneboarder]

32. I disagree for two reasons:

A) You're still gambling the value will appreciate and/or that you can withstand the increase in monthly payments in 5 years (which comes awfully fast!)

B) You're now gambling on the 1 year Libor. The Libor is close to the lowest its ever been, if it isn't already. When the Libor moves, it only has one way to go... up.

Being a homebuyer that bought into a 10/1 4 years ago, I wouldn't suggest a 5/1. I would definitely suggest a 30 year fixed, and wish, wish, wish, I had listened to my wife 4 years ago.

[Statistical]

34. I was in the same boat.

Almost pulled a trigger on a 5/1 ARM, my wife was utterly freaked at the idea. It created a little bit of stress for us, I wanted to have lower payment, she wanted safety of 30yr fixed. I looked at the number and figured the $30 or so a month more in interest on the 30yr fixed worth it for "marital happiness".

So at the time really I did it for her but now in hindsight I am glad to have the knowledge that for next 27 years our mortgage will never change.

Sure a 5/1 might reset at same rate but it might not. Especially today with rates at all time lows unless someone intends to sell how before the reset it doesn't make sense. If someone refinances at the reset likely rates will be higher than they are today.

Now 5/1 might make sense in the 1980s when we had record interest rates. The ability to shave a few % and hope to refinance when rates are lower is still a gamble but at least it is a realistic gamble.

[Statistical]

28. And when it resets in 5 years?

Gambling with ones home is the height of stupidity. For every ARM gambler out there that came out ahead there are 10 in foreclosure right now.

After what we just went through in housing I am frankly surprised anyone would recommend an ARM especially to a new buyer.

Given interest rates are at a 30 year low the ARM can only go up and if we hit a nice patch of inflation right before the reset.... 7%, 8%, 11% APR woot!

[taught_me_patience]

31. If you took out a 5/1 arm in 2005

It would be resetting now... during the lowest interest rates ever. Inflation never materialized. In fact, it doesn't look like it will in the foreseeable future.

[Juneboarder]

36. If you bought in 2005

then you bought at the peak. Your home would have decreased in value since purchasing, thus negating your ability to refinance unless you were one of the few that actually put a down payment down or has money to bring to the table to close a refi. As well, if you put 20% down in 2005, most likely your home has depreciated beyond your down payment and you are still upside down.

Here in SD, my home depreciated by 45% between '07-'08.

[GreenPartyVoter]

26. Thanks everyone! :^D

[HipChick]

27. Credit Union..they tend not to sell off their loans

[GreenPartyVoter]

29. Thanks. We were just talking about looking into one a little while ago. Now we have more reason to.

[GreenPartyVoter]

30. Dupe

[carlyhippy]

35. 30 year fixed, never get an adjustable rate

If you can make higher payments, get a 10 or 15 year. As for banks, it will eventually end up being sold to a big bank, probably just start with a big bank and save the hassle. My mortgage started at a local bank now it belongs to a big bank after being sold 2 times. The mortgage on our first home was sold like 6 different times, it was a mess.