Loan Types You Don’t Hear About Very Often
When you’re looking at getting a loan, you want to get the loan that is tailor-made for your situation; you want something that is going to be absolutely perfect for your family. A lot of this comes down to the monthly payment, the loan term, and the interest rate, but some of it can come down to the way the loan amortizes or what type of home loan you want to get. In this article, we’re going to talk about growing equity mortgages, graduated payment mortgages, and construction loans. These will just be summaries and highlights of each type, so if you are interested in learning more about them you can give us a call or contact us via our website.
The Growing Equity Mortgage
Growing Equity Mortgages, or GEMs, are only a different type of mortgage in the sense that they have a non-standard amortization schedule. The idea behind a GEM is to pay your mortgage off faster in a sustainable way. This is accomplished by starting out at the normal minimum monthly payment that you would have on a standard schedule, then gradually increasing that minimum monthly payment over time to build equity faster than you would be paying the minimum on a standard loan. The reasons why GEMs aren’t very common are that most people don’t know about them, and that those who do know about them would rather just make more than the minimum payment on a standard schedule and have the exact same effect. The downside to a GEM is that it helps you build equity by increasing the mandatory minimum payment. This is no problem if your income grows over time, but if you suffer a career setback or don’t get the promotion you were expecting, you’re put in a situation where you have a higher minimum payment that you can no longer afford, whereas if you just use your own discretion to make more than the minimum payment on a standard schedule, you can just stop making more than the minimum when you are having financial trouble.
The Graduated Payment Mortgage
Graduated Payment Mortgages (GPMs) do basically the same thing as GEMs, but for a very different reason. A GPM starts out with a partially-amortizing payment, which means that your balance is actually going up from month to month because you’re not paying all the interest that you owe each month. This payment gradually goes higher until it’s to a fully-amortizing payment. The reason a GPM does this is to help a borrower get a big enough home to meet his or her family’s needs if the borrower can’t quite qualify for a fully-amortizing payment right now, but should be able to a few years down the road. Good candidates for GPMs could be young college students with families and are about to graduate, or a professional who is working on an extra industry certification that will qualify them for better jobs. These aren’t common because they aren’t that great of a deal unless you really need it. They end up costing the borrower more interest over the life of the loan, and also come with the inherent risk that the borrower will not enjoy the increase in salary he or she was expecting, and won’t be able to keep up with the payments.
VA Construction Loans
Construction loans can be hard to get in any loan program, but they are particularly hard to get in the VA loan program, at least at this time. Why? Construction loans are extremely risky, and most lenders have been turned off of offering them, at least for the time being. A construction loan is a loan that is obtained for the building of a house, rather than for the purchase of an existing house. There are a lot of variables included in construction loans, such as whether the borrower is going to be the contractor or whether they are going to hire one, and whether the land is being purchased or leased as part of the deal, that make construction loans difficult to guarantee effectively, which makes many lenders hesitant to offer them. With that in mind, construction loans can be pretty awesome if you can get one because you can build a truly perfect home that meets you and your family’s needs exactly the way you need them to be met.
These are all loans that aren’t good for that many situations but are perfect for a small few, and if you are in one of those small few situations, one of these may be a great option for your family. Give us a call or reach out to us via our website to learn more about these options.