Want to buy a home before interest rates go up, but there's no money for a down payment.?

No problem.

Got your heart set on a home that's a little out of your price range?

No sweat.

Depending on your situation, there's probably a mortgage product out there for you, say local mortgage lenders.

As the housing market has continued its torrid performance, with record demand and prices, the range of products has greatly expanded.

Susan Grieger, a loan officer at US Bank who is also president of the Nebraska Mortgage Association said that when she started in the business 20 years ago, "it was vanilla, vanilla, vanilla."

Now there are more than 150 mortgage options, she said.

Some of those options include adjustable-rate mortgages, interest-only mortgages, no-down-payment mortgages and conventional fixed-rate mortgages with 40-year terms.

Banking experts have estimated  that up to 40 percent of all mortgages issued in 2005 will be ARMs. That's despite a prediction from the Mortgage Bankers Association of America that interest rates could be nearly a percent higher by the end of the year and 2 percent higher by the end of 2007.

ARMs are loans with a lower initial fixed-rate period that eventually changes to a variable rate.  They  have been popular for some time now, but Grieger said she's seeing more borrowers going with interest-only loans.

Interest-only loans are just that: Rather than having part of your payment go to reducing the principal on your home loan, you pay off only the interest owed on the loan each month. The loans are usually ARMs, with a fixed interest-only period. After the fixed-interest period is up, the home is fully amortized, paid off with principal and interest, over the remaining term.

Grieger said one advantage of an  interest-only loan is that it allows borrowers to qualify for a more expensive home than they would if they went with a conventional fixed-rate mortgage.

Payments on a $250,000 mortgage would be about $200-$250 less a month than payments on a fixed-rate loan for the same amount, she said.

Grieger said she thinks interest-only loans are a good choice for borrowers who don't plan to stay in their home for very long. If you're in a home for only 5-7 years, Grieger said, you're not not paying down the principal very much, anyway.

She acknowledges, though, that interest-only loans aren't for everyone.

"For the guy who wants to be in his house 30 years … he may want to stick with the old vanilla (principal and interest) loan," Grieger said.

George Akers, an executive vice president with First Mortgage Co., which has offices in Omaha and Lincoln, said the majority of loans he's seeing on both new purchases and refinancings are either interest-only or some form of an ARM.

Akers, who is also on the state Mortgage Association board of directors, said he thinks the loans can be good for any homebuyer, but it  depends on what their financial goals are.

If a homebuyer wants more money in  the near term to invest, in a 401(k)  for instance, then Akers said he would recommend an interest-only loan, even if the buyer is planning to stay in the home beyond the interest-only term.

But, Akers said, he's not an advocate of using an interest-only loan to qualify for a more expensive house.

"I think interest-only for the sole purpose of qualifying for a loan you can't get any other way is scary," he said.

Another loan option that is becoming very popular, according to Akers and Grieger, is no-down-payment loans.

A true 100 percent loan will, for most borrowers, be at a higher interest rate than a conventional loan and require private mortgage insurance, Akers said.

Since mortgage insurance is not tax-deductible and is hard to get from under, most borrowers want to stay away from it.

"We rarely do any private mortgage insurance business anymore," Akers said.

One option is what's called an 80/20 loan, Grieger said. It means taking out a first mortgage for 80 percent of the purchase price, which is the standard required for a conventional loan, and taking out a second mortgage or home equity loan for the remaining 20 percent.

Though the second mortgage will carry a higher interest rate, it is a better deal for the borrower, Akers said. The second mortgage can usually be paid off at any time and the interest is tax deductible.

"Overall it's better for the customer," he said.

Neither Grieger nor Akers know of any lender in Lincoln or Omaha that is offering 40-year mortgages, but Akers said some national lenders are.

Fannie Mae is test-marketing 40-year mortgages through federally insured credit unions in 21 markets around the  country.

Cristina Miranda, a Fannie Mae spokeswoman, said the mortgages are attractive to first-time homebuyers and people who live in high-cost areas.

They work just like 30-year conventional loans, but the extended term makes the monthly payments smaller.  The total cost of the loan, however, winds up being thousands of dollars more.

Miranda said that she didn't have figures on how popular the loans have been so far.

"But we keep on getting a lot of questions and interest in it, especially from lenders," she said.

The trend toward non-traditional mortgages worries at least one local credit counselor, who said she's seeing more and more people running into problems paying their mortgages.

Linda Maraman of Consumer Credit Counseling Service of Nebraska said she's seeing more people who are delinquent on their mortgage payments and more people in foreclosure. Most of those people have conventional fixed-rate mortgages or more traditional ARMs, she said.

But Maraman said that just recently she's started seeing people  in her office who have interest-only mortgages.

"It's a concern I have that this is a growing trend," she said.

And Maraman fears the trend could grow. Since the interest-only loans are fairly new, it could be a while before the true negative effects are felt.

"We (Nebraska) tend to be a little behind the curve," she said.

Akers agreed there could be more future defaults on interest-only loans. ARMs have a higher rate of default than fixed-rate loans, he said, so it stands to reason that the same trend would apply to interest-only loans.

Akers said default typically occurs 3-5 years after loans are issued.

"The jury's out on interest-only mortgages because they haven't been around long enough," he said.

Reach Matt Olberding at 473-2647 or molberding@journalstar.com.