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FHA, VA and RHS loans are government loans. All other
loans are generally classified as conventional loans.
The Federal Housing Administration (FHA) is part of
the U.S. Department of Housing and Urban Development
(HUD). FHA administers various mortgage loan programs
that have lower down payment requirements and can be
easier to qualify for than conventional loans. FHA loans
have statutory limits.
VA loans are guaranteed by the U.S. Department of Veterans
Affairs allowing veterans and service persons to obtain
home loans with favorable terms and often without a
down payment. While it’s easier to qualify for
a VA loan than a conventional loan, lenders generally
limit the maximum VA loan to $ 417,000. The VA doesn’t
make the loans, but recommends you via a certificate
of eligibility to your lender.
The Rural Housing Service (RHS) of the U.S. Department
of Agriculture guarantees loans for rural residents
with minimal closing costs and no down payment.
Any Fixed Mortgage locks in the interest rate for the
length of the loan. While you can always refinance,
a fixed rate insulates you from increasing rates, but
keeps you from automatically enjoying rate declines.
The most popular mortgage loan taken, this can also
be the most expensive way to go. You lock into a mortgage
rate for 30 years which makes it easy to budget your
monthly payment, however most people only live in their
homes for 5-years, so there may be less expensive, money-saving
ways to go. It pays to consult with the experts at First
Mortgage Company about alternatives that match your
lifestyle and financial goals.
With a 15-year fixed mortgage you can own your home
in half the time of the traditional 30-year mortgage,
by paying more each month. Qualifying may be tough as
higher income is needed to support the ability to make
the higher payment.
40-Year fixed mortgages have been around for a while,
but they are enjoying a new resurgence as more and more
people decide that paying for their home is not the
end goal. For instance, people in their 40’s and
50’s taking this loan knowing they’ll not
pay it off.
A reverse mortgage is a special type of home loan
that allows homeowners, ages 62 and older, to convert
part of their home's equity into tax-free income. In
a reverse mortgage, instead of the homeowner making
payments to the lender, the lender makes payments to
the homeowner. The homeowner may choose how this money
is received: in a lump sum, fixed monthly payments,
a line of credit, or a combination of these. When the
homeowner sells their home or no longer uses it as their
principal residence, they (or their estate) will repay
the loan. Any remaining equity in the home will go to
the former homeowner, or their heirs. To answer some questions you might have click here.
Unlike traditional home loans, the monthly payment
covers only interest for a set amount of time, such
as 10 years. After that time, the payment will increase
(often markedly) and the loan is paid off by reducing
the principal due each month for another 20 years. Interest-only
loans are increasingly popular today allowing buyers
to get into a higher-priced home than they might otherwise
be able to afford, but there are obvious risks. This
type of mortgage is not recommended for first-time buyers,
or those not familiar with the advantages and drawbacks
of paying for a house over time.
Split or PiggyBack loans can be used to get into a
home with little to no money down and avoid paying PMI.
With this mortgage you’re essentially splitting
the purchase price into two mortgage loans covering
80% and 20% respectively. You pay more interest on the
second loan, but this may allow you to have a relatively
low monthly payment, avoiding a down payment and PMI.
Unlike fixed-rate mortgages, the rate on this loan
is adjusted to the market annually or every 3 or 5 years.
You can usually get into this loan with lower payments
initially – 2-3% lower than traditional loans,
making buying more affordable.
As its name suggests, a Hybrid loan combines the characteristics
of a fixed rate loan with an adjustable rate loan. You
start by carrying a fixed interest rate for a certain
period of time, then move to an adjustable rate. The
lower rate can be fixed for a varying number of years
with the best rate available with a shorter fixed time
period. This is a loan you may want to avoid if you
plan to own your home (vs. trading up with conversion).
This type of loan may be recommended to you if you
have trouble verifying regular income. Lenders don’t
require proof of income or assets and no debt-to-income
ratio is used. To take this loan, you will pay a higher
interest rate because of the risk to the lender and
you will pay a bigger down payment. You will also have
to meet higher credit standards.
If you are going to be relocated in a specific period
of time, this may be a smart loan for you. It carries
a low interest rate for 3, 5, 7 or 10 years when the
full balance then becomes due.
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