Real Estate: Which Program is Right for You?

Have you spent hours and hours pouring over mortgage offers? Do you sometimes feel as though you are talking to used car salesmen when it comes to shopping around for rates? Well if you answered yes to either question, welcome to the world of real estate!

Purchasing Real Estate is a great investment whether you're buying a home to occupy or if you're rehabbing homes for profit. Your home's equity can be used for investing in more properties, home improvements or even your children's college education. The sky is the limit on how you can use your equity.

Today we're going to take a look at the benefits of various mortgage programs and products:

1. 30 Year Fixed Rate Mortgage (Traditional) - Did you know that in today's market you can name your own rate? Yes, it's true. If you want a 30 year FRM at 3% you can get it. However, it might cost you $20,000.00, but you can get it.

The best candidates for 30 Year Fixed Rate Mortgage's are people with credit scores between 680 - 900. If your score is in the lower to mid 600's your rate will be higher because of the risk level. Also, you will have the ability to choose a 10 year or 15 year interest only option with your 30 Year RFM.

2. 30 Year Fixed Rate Mortgage (FHA) - FHA offers excellent rates with a low down payment and in some cases up to 100% financing.

The best candidates for 30 Year Fixed Rate Mortgages offered by FHA are people that have low credit scores BUT that also have 12 months of clean credit ( I.e. debts paid on time and no derogatoriness such as foreclosure or repossessions) Since FHA loans are not credit score driven, it's an excellent program for people that have fair to good credit scores as well.

3. Adjustable Rate Mortgages - ARM's are loans that are fixed for a period and then adjust after that period has expired.

The best candidates for ARM loans would be people that have credit scores anywhere from 600-900. The higher your credit score the better the rate will be. ARM's are great for people that are going to stay in their homes less than 5 years. Also for people that have marginal credit, an ARM loan allows them the time to re-establish their credit.

4. Interest Only Loans - Interest Only Loans can be fixed or adjustable. However, you have to be aware that if you choose a 30 year fixed mortgage that has a 30 year interest only option and you NEVER pay towards your principal, at the end of the term you are going to owe the principal amount not paid.

Interest Only Loans are great loans for everyone. What most people don't realize is that when you choose a fixed rate mortgage you are going to pay mostly interest (90-92%) for the first 7-10 years. Therefore very little of your monthly payment is going towards paying down your principal, so what smart people do is get interest only loans and pay their regular PITI payment (principal, interest, taxes and insurance) and subsequently double the amount of principal that they are applying to their loan.

5. Negative Amortization Loans - These loans are almost always ARM's because the rate changes either monthly or annually and in some cases it can be locked for up to 5 years.

These loans are great for investors because they are typically purchasing property and hanging on to it for less than 3 years, therefore the negative amortization is of no consequence. However, if you decide to choose a Negative Amortization loan for your personal residence try and alternate your payments between paying the minimum payment and paying the PITI payment. If you do this, it will allow you to better manage your accumulated negative amortization.

The real estate game can be very intimidating, so the bottom line is to monitor your credit and your credit score, do your research on various mortgage programs and their benefits and take your time before you make a decision.