Home Loans 101

Home Loans 101

"Image courtesy of Stuart Miles / FreeDigitalPhotos.net"
“Image courtesy of Stuart Miles / FreeDigitalPhotos.net”

It is a fact there are fewer opportunities available for mortgages today, than during the housing boom years. However, there are many options still available in todays market and we will discuss the different types of home loans available.

#1 Fixed or Adjustable Rate Home Loan

  • Fixed-Rate: This type of loan carries the same interest rate for the entire length of the loan and the interest portion of payment is included in monthly payments. In short, this type of mortgage guarantees fixed interest rate and fixed monthly mortgage- for entire life of loan.
  • Adjustable-Rate(ARM): Also called a “hybrid” loan because they start with a fixed rate for a certain period of time and after that period, the rate will start to adjust.

#2 Conventional or Government Loan

  • Conventional: not insured by the government in any way and is made in the private sector with no form of government backing. If you can afford a 20% down payment, you can avoid mortgage insurance which is required on loans that make up more than 80% of the purchase price.
  • Government: these types of loans are actually government-backed loans and insured by some type of federal agency

-FHA mortgage requires 3.5% down, is more lenient than conventional loans and could be the best option for below-average credit score or other qualification problems.

-VA mortgage is reserved for military service members and their families. It can be used to finance 100% of the home purchase, eliminating the need for a down payment.

-USDA mortgage is reserved for people who live in certain parts of the country. There are also income restrictions as well and designed for low-income residents of rural areas.

So.. what is the right type of mortgage for you? Start by answering these few questions and you will be on your way to find your perfect mortgage. How much do I have for down payment? What is my credit score? How long do you plan on living in home?

This article is not all-inclusive and should only be used as guide. I would encourage you to make a phone call or visit one our of local REALTORS offices for additional information and a referral to a trusted loan professional in the area. The more information you learn, the easier it will be to find the right loan type for your needs.