Types of home loans.
Everybody’s understanding of happiness is different. It’s a well paid job or a successful business, it’s a family with a lot of kids, it’s the possibility to travel the world or a quiet life on the beach. If you’ve been living with your parents till now (nothing’s wrong with that – you have saved quite a lot!) or have been renting and your idea of happiness is to have a place of your own you must be ecstatic about today’s market.
If you have a steady income, nice bank account, and excellent credit score and have calculated all the possible extra expenses that come with a new purchase, such as house, you are ready for the next step. Now is the time to figure out which type of home loan you want. It is always a good idea to know as much as possible about the real estate loans before even speaking to a lender.
So, what are the types of home loans? Basically, there are quite a few of them, but all could be qualified as fixed-rate or adjustable-rate loans. All loan types have positive and negative sides. Let’s take a closer look in order to choose the right home loan for you:
Fixed-rate loan is a mortgage that has the same interest rate over the life of the loan. What’s good about it is that you know there are no “surprises” influenced by the economy. What’s bad is that the premiums are usually higher (although, the longer the term – the more comfortable your mortgage will be);
Adjustable-rate loan (ARM), also knows as variable rate, means that the interest rate will change according to the average interest rates. It consists of two phases. First, during 3, 5 or 7 years (based on your lender) you will have a steady mortgage, which has lower interest rate than the regular fixed-rate mortgage. In the second phase it goes up or down together with the current interest rates, making it difficult to predict. So at some time you may be paying less, at other – much more. Pay attention to amortization (how much of the payment goes toward interest and how much – loan’s principal amount) and caps (limit put on how high your interest may grow);
Jumbo loan, also known as non-conforming, can be fixed- or adjustable-rate. It is used for the houses in the high-cost markets, such as in San Francisco, New York, Miami and others; where mortgages are higher than the conforming loan limits ($417,000), set by Fannie Mae and Freddie Mac. The main disadvantage is that interest rates on jumbo loans are slightly higher than on standard loans. The good part is that the interest payments could be used as a deductible for your federal taxes;
Affordable Housing Programs are perfect for the first time homeowners or for people with little or no money for a down payment. Low income families can be qualified for an affordable housing program;
FHA (Federal Housing Administration)/VA (Veterans Administration) loans are the types of loans that are insured by the federal government, which makes private mortgage companies more willing to let people with a moderate to low income to borrow money. As you see neither FHA nor VA writes loans. Both give an opportunity to own a home. FHA works with a variety of consumers, when VA is limited to veterans and active-duty personnel. These programs have great benefits, such as little or no money for a down payment; you don’t have to have a high income to qualify; and the interest rate is lower than the standard market rates.
I hope, this information is helpful and will make it easier to see all the possibilities and advantages you can get with a specific type of loan. Never rush into signing a contract. Read it carefully. Pay attention to all the details. And enjoy your home shopping experience.
