Also, make sure to include all the income you have. If you have any equity in any stocks or other financial accounts, make sure to mention that to the broker as well.

The more money you can put down on the loan, the more likely it is that you can get approved. FHA loans usually only require 3-5% down. They are also usually open to working with people with credit problems.

Minimum Payment

The lowest payment option is generally the minimum required payment. The minimum payment is calculated by adding the monthly principal amount to a starting rate, usually between one and two percent. For example, the minimum monthly payment on a $100,000 mortgage with a starting rate of 1.25% would be $333.25.

Interest-Only Payment

An interest-only payment is calculated by determining the amount of interest you are responsible for each month based on your actual interest rate (index plus margin). For example, the interest-only payment on the same $100,000 mortgage with a 3% index and 2% margin would be $416.67.

Full-Amortization Payment

A full-amortization payment is calculated in the same way a monthly payment is calculated on a traditional ARM. A full-amortization payment on the $100,000 mortgage with a 5% interest rate would be $536.82 (based on a 30-year term).

While lower payments can be appealing, borrowers should understand that they are still responsible for the same amount they would pay monthly with the full-amortization option. If a borrower only pays the minimum payment on the mortgage given in the above examples, they would still be responsible for the $203.57 difference between that payment and the full amortization amount. The unpaid portion would then be added to the principal and charged interest.

The minimum monthly payment will increase by 7.5% each year. After a period established by the lender, usually five years, the loan will convert to a traditional ARM, and payment options will no longer be available. The borrower will then be responsible for the full-amortization payment, including any additional unpaid interest amounts from the optional payment period.

Though an option one mortgage loan can be beneficial for borrowers who would initially struggle to pay the fully amortized monthly payments, it's not a good mortgage for borrowers who want to earn equity on their home.

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The average rate of interest on mortgage loans continues to fall and has been under 5 percent for almost all of this past year, with this recent round of rate cuts seen as the lowest for borrowers in years. The reason, many borrowers today have bad or at least less than perfect credit scores. Still a borrower with less then perfect credit an jump through a few hoops and get a fairly decen rate on a loan.