So you found the house of your dreams, and now you have to figure out which loan is right for you. Here is a quick guide to the types of loans that are available.
FIXED-RATE & ADJUSTABLE HOME LOANS
Fixed-Rate mortgage: This type of home loan carries the same interest rate for the entire term (length) of the loan. The interest rate makes up part of your monthly payment. It's also the only component that has the potential to change over time. So if you get a mortgage with a guaranteed fixed rate, your monthly payment is guaranteed to stay the same -- for the entire life of the loan.
Adjustable-rate mortgage: These are also referred to as ARM loans for short. Unlike the previous option, this type of mortgage has an interest rate that changes over time. This also means that the size of your monthly payment will change over time. It might adjust up or down, depending on market conditions at the time of adjustment. But they usually adjust upward, resulting in a larger monthly payment.
Hybrid ARM loan: Most of the adjustable-rate mortgages offered today are considered "hybrid" loans. They get this name because they start off with a fixed rate for a certain period of time. After that period, the rate will begin to adjust. The most popular example is the 5/1 ARM loan, which carries a fixed rate of interest for the first five years. The rate will change every year after that. Some lenders offer 1-year, 3-year and 7-year ARMs, as well.
GOVERNMENT LOANS
FHA loan -- This mortgage is made by lenders in the private sector (known as FHA-approved lenders) and is insured through the Federal Housing Administration. If the borrower defaults on the loan, the lender gets paid by the FHA.
VA loan -- This program is reserved for military service members and their families. It can be used to finance 100 percent of a home purchase, which eliminates the need for a down payment. This program is managed by the Department of Veteran Affairs.
The FHA home loan is by far the most popular and widely used of the government programs. As of June 2011, FHA loans accounted for about 30 percent of the overall mortgage market. Their market share was in the single-digit percentages just a few years ago.
Why are they so much more popular today? Because the private mortgage market has gotten stricter with its lending requirements since the housing crash. So a lot of home buyers with less-than-perfect credit have no choice but to use the FHA program (with its more flexible lending guidelines).
I can walk you through the entire process! Give me a call.
Kandiss
248-875-5868
kandiss@dwellingsunlimited.com
