In General, There Are Seven Types Of Common Home Loans

Category: Finance.

Every year, thousands of people ask themselves the question of how to find the best home loan. Having the wrong home loan can be expensive, and it can even lead to foreclosure if the payments cannot be made on time.

Most people would agree that a home loan is one of the biggest investments the average consumer will make in a lifetime. Understanding what the various types of home loans are is the first step to finding the best home loan. There are, unique hybrid loans, of course which can be negotiated, but for the most part home loans will fall into one of these categories: The Conventional Mortgage: This is a fixed rate loan through a commercial lender for a term of 15, 20, or 30 years. In general, there are seven types of common home loans. The commercial lender is usually a bank or a mortgage lender. If the buyer does not have at least 20% for a down payment, these loans require private mortgage insurance, also known as PMI.

The amount of the monthly payments, and the terms, the interest rate of the loan are locked in by the home loan contract. ARM or Adjustable Rate Mortgage: In many respects the ARM is similar to a conventional mortgage. While the interest rate for a fixed rate loan will not fluctuate, the interest rates for an ARM will. What changes in the ARM is the interest rate. ARM mortgages adjust up or down, according to the terms of the contract. It is important to understand that ARM contracts can vary greatly.

After the initial term, the interest rate will change periodically according to financial markets. You will certainly want to see if the contract includes caps on the level of interest that can be charged. Federal Housing Authority Loan or FHA: The Federal Housing Authority( FHA) does not actually loan money to buyers but rather it insures loans for lenders. A contract without a cap could lead to disaster. By backing up the loan, the FHA programs allow lenders to justify larger loans with smaller down payments. VA Loans or Veteran Affairs Loans: According to their literature, "The Department of Veterans Affairs provides guaranteed loans for qualified veterans and servicemen" . The amount that the FHA will back up varies from region to region so make sure you explore what is available to you by reading the proper criteria.

What is so special about these loans is that they allow the qualifier( the buyer) to offer little or no down payment for the loan. The VA mortgage funding fee is usually equal to 2% of the loan amount for the first- time buyer. There are some restrictions and these loans are subject to the VA mortgage fee which is dependent on the size of the down payment. The VA funding fee may be waived for disabled veterans. The most common assumable mortgages are FHA, VA, or ARM mortgages. The Assumable Mortgage: With these types of home loans you simply take over the existing mortgage. In general, you assume the current contract, interest rates, with specified payments, and term remaining.

Assumable mortgages must be either qualifying or non- qualifying mortgages. If there is an equity difference, the equity difference is made up in the down payment. The Buy- Down Mortgage: This is a type of home that involves paying the interest first or up front. This allows for a lower monthly payment during the specified term of the buy down. These interest payments are paid over a specified period of time. The Hybrid ARM Loans: This is usually a 30- year loan that is identical to a conventional ARM loan except that the interest rate is changed once over the term. The first rate adjustment is usually at the 1, 5, 7, or 10 year mark of the term.