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Loan Types

There are a number loan programs to meet the need of home buyers. The loans range from conventional loans to loans you can get for home construction. All home loans are secured against your home.

There are two types of home loans based on rates. Everything else is a variation of these two types:

Fixed Rate Loans

These are the most popular home loans. This is how they work. You select the amount you want to borrow. Say, it’s $200,000 on a $250,000 home. The length of the loan will be 30 years. A quick check of an internet calculator indicates your payment will be $1104.41 per month at 5.25% interest. That’s it. The house including the mortgage interest will be paid off in 30 years if you make every payment.

Please note- this doesn’t include taxes, mortgage insurance or home insurance that can also affect your monthly payment.

Adjustable (ARM) Loans

ARM’s provide a low rate and payment in the beginning of the loan- usually the first 3 to 5 years. For example, right now you might get an initial rate on a home loan of 3.75%. This means your payment is lower. Using $200,000 at 3.75%, your payment would be $926.23. That difference in payment from a fixed loan of 5.25% might qualify you for a larger home.

However, after a few years, the ARM disappears and the rate will be fixed at whatever the prevailing market rate is at the time.

Variations of this include a jumbo loan where the entire principle has to be refinanced at the end of a defined period. You can also get a rate that changes each year for a certain amount of years. This one is usually capped at no more than a 1 or 2 point change yearly and a 5 to 6 point change over the life of the loan.

Federal Housing Authority (FHA) and Veteran’s Administration (VA) Loans

These really are fixed and adjustable rate loans secured by the government up to certain loan limits. For example, right now, the VA loan limit is $417,000.

Lenders like these loans because the government insures them. So, in addition to having the home as collateral, the lenders have added protection against default.

This helps the lenders and it helps you. If you qualify for a government backed loan, it could help you get a lower rate, put down a lower down payment, and even get you a loan you couldn’t get outside of the government system.

Other Loans

Loan products exist for almost any home loan purpose. They’re variations of the fixed and ARM loans obtained with government or no government backing. Here are some examples:

  • Purchase- Rehabilitation Loans (203k)
  • Construction Loans
  • Home Equity Loans
  • Sub Prime loans (for those with low credit scores)
  • No Down Payment Loans
  • Investor Loans
  • Second Home Loans
  • Reverse Mortgages
  • Refinancing Loans
  • Debt Consolidation Loans
  • Home Equity Line of Credit
  • Cash Out and Refinance

More information on home Loans

In addition to finding good information from your lender and on the internet that will help you, excellent sources of government information on home loans are:

The Department of Urban Housing Development: http://www.hud.com

The Federal Housing Authority Page: http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schema=PORTAL

Steve Wyrostek -HomeLoans.org Expert A 20 year plus veteran of the insurance industry, Steve managed departments in the personal and commercial lines areas of major insurers. He’s familiar with how insurance—ranging from boat to workers compensation—works.

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