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Special Mortgages Part II

Many lenders have created mortgage programs to accommodate borrowers' specific financial situation. Some of these programs are targeted to helping people with credit problems obtain home loans. Special mortgages exist to help people who are unable to buy a home through a conventional mortgage.

Zero-down mortgages

Zero-down mortgages allow consumers to borrow the entire value of the home. The advantage of this mortgage is that consumers can buy a home without making a down payment, or to obtain more cash by refinancing their home mortgage. The disadvantage of this program is that lenders view them as more risky, which can result in higher interest rates or private mortgage insurance.

Interest-only Mortgages

Interest-only mortgages require the borrower to pay only the interest charges, with principal payments optional. These home loans can be interest-only for the entire loan term, or interest-only for the first few years, with principal payments required after that. These mortgages offer substantially lower monthly payments during the interest-only term. However, because the principal is paid off in less time than in a conventional mortgage, payments that include principal would be higher than they would through conventional mortgages - (more in-depth information on interest-only mortgages can be found here).

Limited Documentation Mortgages

Limited documentation mortgages, also called "no-doc" or "low-doc" mortgages, require less documentation than conventional mortgages. These home loans are advantageous for borrowers who own their own business, have credit problems, earn substantial commission or tip income, or would prefer higher financial privacy. These loans are viewed as riskier than conventional loans, so borrowers with this type of mortgage will pay higher interest rates.

Buydown Mortgages

Buydown mortgages allow a borrower to pay a lump sum initially, in return for a lower rate at the start of the mortgage. For example, a 7% loan with a "3-2-1 buydown" results in a home loan whose interest rate is 4% for the first year, 5% for the second year, 6% for the third year, and 7% for the remainder of the term. The price paid to lower the interest is typically 1-2% of the loan amount per point of interest bought. Buydown mortgages are advantageous for people who expect to have higher income in the future, but need a lower monthly payment until that income comes in.

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