Normally, when buyers plan to purchase their home, they first think of the traditional fixed rate 30-year mortgage. It's the most common form of financing, maybe because it has the lowest monthly payment. Adjustable rate mortgages can give you less up-front payment, but the monthly payment can significantly go up few years
down the line when the rates are recalculated as per market rate.
With historically low mortgage rates, buyers naturally want to take advantage and lock in their 30-year fixed rates at the lowest possible rate before the Fed allows the rates to increase.
However, there will be a new option available to the low income buyers and those buyers that are still tied to their student loans but earning a steady income. Currently, the Wealth Building Home Loan or WBHL is at it's test stage. The WBHL has a generous credit requirement, incomes bears more weight than FICO scores. It also offers faster equity build up as compared to the traditional 30-year mortgage. "In the first three years of the WBHL, 77% of monthly mortgage payments pay off the principal, creating huge amounts of equity," says Edward Pinto of the American Enterprise Institute International Center for Housing Risk. While the payment for the first half of the 30-year fixed mortgage rate goes to the interest alone.
In the WBHL, majority of the mortgage payment will go to equity in the home. Home buyers have the option to use their down payment to buy down the interest rate. Or, if they don't have money for down payment, they can use a 3% seller concession to buy down the interest rate to near zero. For every 1% paid upfront, buyers can get .5% point discount in their interest rate, twice the industry standard for rate buydowns. Bank of America will hold the 15-year mortgage loans and subsidize the interest rate buydown. (Source:www.realtor.com) Mortgage payments are slightly higher with WBHL, but the buyer can pay off the loan in half the time.