Saturday, November 2, 2013
New Home Financing - The Different Types of Financing
Before you buy a house you need to understand the different financing options that are available to you. Home loans differ mainly in the interest rate and the points charged. Loans can also vary depending on who offers the loans and how they are backed. The two most common types of home loans are conventional and government backed. You can get your loan from a banker or you can get a loan from a banker backed by Uncle Sam. Loans vary depending on how the payments are structured. The two most common structures are fixed rate mortgages and adjustable-rate mortgages. Here I will tell you about the different types of home loans you have available to you.Conventional LoansConventional loans are secured from a lender - usually a bank, mortgage broker, or savings and loan institution. Conventional loans usually require 3 to 20 percent for a down payment. You can put down less than 20 percent, but if you do, most lenders will require that you purchase private mortgage insurance (PMI). This insurance increases the costs to you because you have to pay to protect the lender in case you default on the loan.Government-Backed LoansThe two most common types of government loans are FHA (Federal Housing Authority) which are insured by the federal government, and VA (Veterans Administration), which are guaranteed.FHA loans are attractive because they are assumable(someone else can take over the payments). There are no penalties for prepaying an FHA loan.Fixed Rate Mortgage LoansOn a fixed rate mortgage, your monthly payment never varies. You pay the same amount for the first payment as you do for the last. If interest rates go up, it doesn't matter; your payment stays the same. Likewise if interest rates go down, your payments stay the same.Adjustable-Rate Mortgage LoansWhen you get an ARM loan, you usually pay a lower rate initially than on a fixed-rate mortgage. The interest rate on the ARM loan is tied to an index that reflects the current money market. If the interest rates go up on your renewal date, your payments go up. If the interest rates go down your payments go down.I hope that this article has given you some useful information that will help you in your search for a home loan.