DIFFERENT LOAN TYPES -

 

Today's homebuyer has more financing options than have ever been available before. From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually anyone.

 

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Though this article discusses some of the more common loan types, you should spend time talking with different lenders before deciding on the right loan for your situation.

 

General Categories Of Loans

 

Most loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features of both.

 

When searching for a type of mortgage, it's important to choose the best loan program that fits your personal wants and needs. The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences with a real estate or mortgage professional.

 

Here are some common types of mortgages that you should know about:

 

Fixed-Rated Mortgage

 

A mortgage on which the interest rate is set for the term of the loan, regardless of future interest rate fluctuations. This makes payments precisely predictable, but it's not always the cheapest alternative.

 

Adjustable Rate Mortgage (ARM)

 

A mortgage in which the interest rate may vary and is adjusted periodically based on a pre-selected index. Sometimes known as a variable rate mortgage. These types of loans can be cheaper initially, but can be unpredictable.

 

Balloon (payment) Mortgage

 

Usually a short term fixed-rate loan that involves small payments for a certain period of time, and one large payment for the remaining amount of the principal at a time specified in the contract.

 

Blanket Mortgage

 

One mortgage securing several pieces of real estate.

 

Conventional Loan

 

A mortgage not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA). This mortgage is not a sub-prime loan. Generally, the average downpayment is 15-20% of the sales price plus closing costs.

 

FHA Loan

 

A loan insured by the Federal Housing Administration (FHA), open to all qualified home purchasers. This program allows buyers who might not otherwise qualify for a home loan to obtain one because the risk is removed from the lender by FHA. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country. Generally, the required downpayment is 3.5% of the sales price plus closing costs.

 

VA Loan

 

Gives Veterans ability to purchase property without a down payment is the major advantage associated with a VA loan. While standard conventional loans generally require a down payment of up to 20 percent, you can generally qualify for a VA-backed loan without this down payment since the lender is protected by the government guarantee. Furthermore, in most cases you do not have to pay private mortgage insurance (PMI) which is required on a conventional loan in which the buyer does not make a 20 percent down payment. However, although 100 percent financing is possible, experts caution that former service members should work out long-term payment strategies, including researching pensions and other benefits, before taking on a significant loan. A VA loan can also have lower closing costs, and closing costs and fees can generally be rolled into the cost of the mortgage and paid over time. VA loans have no prepayment penalties and are assumable mortgages, so you have more flexibility as far as payments.

 

 

 

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