Home Buying Loan Options

A Variety of Home Loans To Choose From

When you are looking to purchase a home, especially your first home, you may wonder about what type of mortgage might be best for you. Years ago, many people had only one or two choices, but these days, there are literally hundreds of different kinds of mortgages. This can be a wonderful thing for a home buyer, and it is a lot like visiting a buffet and being able to choose the things that you want. Once you take a look at all of the options that you have available to choose from, you will be able to find a home mortgage that will suit your needs perfectly.

The First Stop: The Conventional Mortgage
The first stop on your buffet of buying options it the conventional mortgage. The conventional mortgage is a mortgage that you can get that is not guaranteed by the government. This is the mortgage that you probably think of when you think of a mortgage. The good thing about conventional mortgages is that they are very easy to understand, yet offer a lot of different options. They are often the fastest way to get a borrower out of their old home and into a new one.

Government Funded Loans
There are also government funded loans that you can choose from. If you have served in the military at any point in time and were honorably discharged, you may be eligible to get a loan through the Veterans Association, or VA. The VA offers excellent benefits to those who have been active in the military, and those who apply can often get a loan that requires no money down.

You can also get a loan like this if you have not been in the military by going through the Federal Housing Administration, or FHA. The FHA offers loans to those who wish to own a home but who do not have the capital available to put the required 20% down on their home. The only requirements from the FHA are that the borrower:

• Have a fair credit score

• Have held a job steadily for the past 2 years

• Have a home that will pass their inspection

If you wish to use either the VA or the FHA to insure your mortgage in order to get a better deal, you will be asked to fill out the specific paperwork. Your mortgage company can help you to find, and fill out, the appropriate paperwork in order to help you get the best deal possible.

Options In Both Situations
Whether you choose a conventional mortgage or one backed by the government, you’ll have additional options when it comes to getting the terms you want.

Adjustable Rate Mortgages
Adjustable rate mortgages are an excellent idea for many people, but especially for those who are not new to purchasing a home using a mortgage. An adjustable rate mortgage, known by most as an ARM, is a mortgage where the interest rate changes. Every adjustable rate mortgage comes with a set adjustment period. This is usually one, three, five, or seven years in length. During the entire adjustment period, you can expect to make a set monthly payment. Eventually, though, your payment amount will change as the going interest rate changes. For example, if your adjustment period is one year, your mortgage payment amount will go up or down after one year. This can be an excellent if the market goes down. Your payment amount will decrease in that situation. If the rate goes up, however, your payments will be adjusted for that as well.

In order to ensure that your payments don’t change too drastically, your ARM will come with a cap. You can either have a lifetime cap or a cap on any given adjustment period. For many, the cap is 2% during any adjustment period. That means that your total payment amount won’t change any more than two percent from period to period. This can help to make the entire process more affordable.

An adjustable rate mortgage is usually a good choice for someone who believes that their income will be changing within the next few years. Often those who are graduating from college or graduate school choose an ARM because they know that their income will be substantially larger in a few short years, making it easy for them to be able to afford the payments. Those who are planning on purchasing the home only to resell it within just a few years often choose an ARM as well, as they can get a low rate for it while they live there, and sell before the rate has a chance to increase and make their payments higher.

Fixed Rate Mortgage
A fixed rate mortgage is often the number one choice for first time home buyers. This is because it is a very steady way to use a mortgage to purchase your home. With a fixed rate mortgage, your interest rate will stay locked in place, which means that your monthly mortgage payments will always be the same. You will always be able to pay the same amount on the principle and the interest for your mortgage. Your taxes and your insurance may change over time, but the basics of your mortgage will never be adjusted.

This is a great option for first time home buyers because it allows them the time to get used to paying a mortgage. Fixed rate mortgages are also a great choice for people who plan to stay in the home that they are purchasing for a long time. Thirty years, which is the average length of a fixed rate mortgage, often seems like a long time to some home buyers, but you can always lower the length by making extra payments or by refinancing your home when the rate goes lower.

Balloon Mortgages
Balloon mortgages are another option that many home buyers consider. This type of loan has a fixed rate for the first amount of the loan, usually five to seven years. Then, after this fixed time is gone, the borrower will be asked to make a large payment paying off the rest of the loan. This option is a great one for those who plan on either refinancing or selling before the balloon payment is due, or for those who are going to come into a large amount of money before they get to the balloon payment.

There are many different kinds of mortgages available, from those that have simple terms to those that are a bit more complex. The more you search, the easier it will be to find a mortgage that suits your situation perfectly.

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