Three main types of loans:
 

-  Conventional Loan:  This mortgage is a standard loan with 20 percent or higher down payment.  Conventional loans are not insured by the lender and it does not require the borrower to buy private mortgage insurance also know as PMI.

-  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. If you’re a military member, you should have a VA specialist somewhere within your command. They can provide you with details about the program.

 

Within the above loans, these types of loan options would apply:
 
 

-  Fix-Rate Mortgage:  This type of loan will have same interest rate from the start of your loan to the end of it.  Assuming you chose a 30 year loan, your interest rate will remain the same until you have paid off your loan.  The benefit of a fixed rate mortgage is that your monthly mortgage payments will be the same every month for the life of the loan.  Fix-rate mortgage is the most commonly used as of today.

-  Adjustable-Rate Mortgage:  This is also referred to as ARM.  This type of mortgage can adjust based on the movements in the interest rate index.  This type of loan usually adjusts every year or sooner. The benefit of this type of loan is that if the current market rate is low, your monthly payment will adjust lower.  Most people will avoid this loan due to the fact that it will change, so you won’t know what your mortgage will be each month.

-  Hybrid ARM loan:  Most adjustable rate mortgages are hybrid ARM loans. This type of loan will usually be fixed for an interval of 5 years or more and will adjust after that.  Usually, the interest rate for the first 5 years will be lower than a 30 years fixed loan and will have an initial savings for the fixed period. This type of loan is good for buyers who move often or someone who knows that they will sell before the 5 year period.  Obviously, the benefit for this type of loan is the savings for the fixed period.  But if they end up keeping the home and not moving, they will either have an adjustable mortgage for the rest of the loan or to refinance for a fixed rate that may not be as low as 5 years ago.

-  Interest only Loans: For an interest only loan, you only pay for the interest each month and the loan amount will stay the same for 5 to 10 years. But after this term, the loan will amortized for the remaining of the loan.  This will cause a great increase to the monthly payment.  The benefit for interest only loan is that you will have a lower monthly payment for the 5 to 10 year term. Since the monthly payment is lower, you can qualify for a higher loan amount.  This will also be good for investors anticipating an increase in home value and selling in 5 to 10 years for a return in equity of the home.  Why most people will shy away from interest only loan is because the principle balance will stay the same.

 

The above information are for general knowledge only.  Due to the changing mortgage markets and the complexity of it, a loan consultant can advise you of your mortgage needs based on your personal financial situation.  The first step is to get a pre-approval for a loan.  There is no fee to get pre-approved and you are not committed to go forward with the loan.  By getting a pre-approval however, will allow us to determine what home price we can start looking for.  Contact us for more information about loan pre-approval.