5 Mortgage Loan Types To Purchase Your New Home
July 19, 2012
There are a multitude of home loan types available on the market today. As a first time homebuyer the choices may be daunting. The type of home loan you choose will have a huge long term effect on you so make sure you fully understand loans before you commit to one particular type.* Fixed-Rate Mortgage Types - Fixed rate loans, are completely amortized which means they have the same cost per month and the payment is comprised of principal and interest on your home over a pre-determined time frame. The two most common fixed rate mortgages are 15-year and 30-year mortgages. However often you may find 10-year, 40 or even 50-year mortgages. Commonly the amortization schedule is such that in the early years of a loan you are paying more interest than principal and the balance shifts middle to end. If you choose to pay more than your monthly mortgage, normally that extra payment goes straight toward principal and will shorten the life of your loan and the amount of interest paid. But make sure your loan allows for early payment stipulations. FHA Loans - These loan types are insured by the government through mortgage insurance that is rolled into the loan. They often are attractive to fist time homebuyers because the down payment requirements are usually lower than fixed-rate mortgages, and credit scores can be a little bit lower. VA Loans - These loan types, like the FHA loans, are also government loans. They are available to veterans who have served in the Armed Services and in certain cases those spouses of deceased veterans. The requirements for these loans may vary depending on length of service, type of discharge and other factors. But a key feature to this loan is that no down payment is required. Interest-Only Loans - This mortgage type has a predetermined time period where the loan only consists of a set interest portion of the loan. An example: For the first 3, 5, 7 or even 10 years (Or whatever the stipulations of the loan) the required payment is only comprised of mortgage. Once you hit the end of the designated "interest only" time period, often the monthly amount you pay will increase to reflect interest and principal. There are many different types of interest only loans. Make sure you talk in detail with a lender. Adjustable Rate Mortgages (ARMs) - These loan types are often one that people are cautious of because there are so many different types out there. In these loans, interest rates can fluctuate and move up or down, sometimes they are fixed for a period of time before they begin to adjust. They may move up or down monthly, semi-annually or annually. These loans can be tied to different indexes that can cause them to move more or less depending on the volatility of the index. Some only allow the adjustment go up or down a set amount in a given period regardless of the index. Again, a true education on ARMs with a licensed lender is advised before jumping into one of these loans. These are just 5 of the most common loan types out there on the market today to help you purchase your new home. For details and more information on what loan type would be best for you, make sure to contact a licensed mortgage lender for more details. *This information is general in nature, and only a licenses lender can give you specifics that will fit your situation. Please speak with a lender to find out details on any loan types that could be available to you.