If you are in the market for a new home, its important that you know what type of loans are available to you. Whether you have perfect credit, a few financial blemishes or are just starting out in life and want to own a home, understanding your options will prove to be invaluable during your house hunting excursion.
Fixed Rate Mortgage
A fixed rate mortgage is one of the most popular home loans and is commonly available as a 15 or 30 year term. Because it offers the borrower an assurance that both the principal and interest will remain the same throughout the term of the loan, a fixed rate mortgage is ideal for many.
Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage, also referred to as an ARM loan, is one in which the interest rates adjust according to the current market. This means that interest rates can either increase or decrease at regular intervals, based on established market indexes.
An interest-only mortgage is one that requires the borrower to pay interest only payments for a preset number of years during the loan term. After that initial period, the monthly payments will then adjust to include both the principal and interest remaining on the loan.
A balloon mortgage is a loan that requires monthly payments that do not completely repay the loan. At the conclusion of the balloon term, a large lump-sum payment is due to pay off the balance of the loan.
An FHA and/or VA loan are mortgages that are guaranteed by the government. An FHA loan is easier to qualify for than a conventional mortgage, requires a lower down payment and is guaranteed by the Federal Housing Authority. A VA loan, which is for veterans only, is guaranteed by the Veterans Administration.
Construction loans are available for borrowers who are purchasing or building a newly constructed home. These loans, which are offered at either fixed oradjustable rates, require slightly more paperwork and inspections than a conventional mortgage.
Many homebuyers, especially those with a limited or poor credit history, prefer to seek owner financing when purchasing a new home. Because there is no credit check, buyers will not be judged for past credit problems. In addition, owner financing may offer a low down payment requirement and competitive interest rates.