The following loan types can help people in exceptional circumstances. A 203 (K) or a balloon mortgage come with benefits and obligations that will fit different types of borrowers looking to purchase a home. Reverse mortgages and secure loans effectively put up equity or assets as loan collateral. Cash advances are smaller loans that many can use for a short-term occasional cash infusion.
FHA 203 (K)
203 (K) loans can be put to good use by people handy and knowledgeable in home repair. Finding a shabby house, repairing it and selling a newly-renovated high-value property is the ideal situation that a 203 (K) loan facilitates. However, borrowers should research whether a given repair or renovation will demand a proportionately higher price on the real estate market. Some home renovations and “improvements” end up being very unprofitable.
Balloon Mortgages
Typically, these loans have a 5 or 7-year duration with a fixed low rate that is very attractive. The trick to balloon mortgages is that they have a giant “balloon” payment at the end that is due all at once. For example, a five-year mortgage for $100,000 at 5 percent annual interest would require monthly payments of $536.82. This is reasonable while it lasts, but the balloon is a $92,365.63 obligation at the conclusion of the loan.
Reverse Mortgage
A reverse mortgage converts existing home equity into cash without monthly repayment requirement as long as the borrower lives in the house. Upon sale of the property, the lender is paid back proportionately to the percentage of equity turned into cash. In effect, a reverse mortgage lets a borrower benefit now from a future property sale without losing the property.
Secured Loan
Secured loans are based on an asset that the lender has a right to confiscate in case a borrower does not make agreed-upon payments. As long as the secured collateral is not critical, secured loans may be a good idea for borrowers with bad credit scores.
Cash Advance
These are short-term and relatively small infusions suitable for necessities. The experts from Deerfield Pawnbrokers say cash advances can be made by tax specialists, with the borrower’s anticipated tax refund used to pay back the principal borrowed and appropriate interest.
Though they may seem like great deals, prospective borrowers should be very careful to read the fine print. Each of these loan types have sub-categories based on specific borrower needs, expenses and lender risk.