Today's homebuyer has more financing options than have
ever been available before. From traditional mortgages to
adjustable-rate and hybrid loans, there are financing packages designed
to meet the needs of virtually anyone. Windsor Capital
Mortgage Corporation
home mortgage
will help you find the one that best fits your needs.
Below is a summary of the types of home loans that are available.
Conventional Home Loans
A conventional loan is simply a loan offered by a
traditional private lender. They may be fixed-rate, adjustable, hybrid
or other types. While conventional loans may be harder to qualify for
than government-backed loans, they often require less paperwork and
typically do not have a maximum allowable amount.
General
categories of loans
Most loans fall into three major categories: fixed-rate,
adjustable-rate, and hybrid loans that combine features of both.
Fixed-rate
mortgages
As the name implies, a fixed-rate mortgage carries
the same interest rate for the life of the loan. Traditionally,
fixed-rate mortgages have been the most popular choice among
homeowners, because the fixed monthly payment is easy to plan and
budget for, and can help protect against inflation. Fixed-rate
mortgages are most common in 30-year and 15-year terms, but recently
more lenders have begun offering 20-year and 40-year loans.
Adjustable-rate
mortgages (ARM)
Adjustable-rate mortgages differ from fixed-rate
mortgages in that the interest rate and monthly payment can change
over the life of the loan. This is because the interest rate for an
ARM is tied to an index (such as Treasury Securities) that may rise
or fall over time. In order to protect against dramatic increases in
the rate, ARM loans usually have caps that limit the rate from
rising above a certain amount between adjustments (i.e. no more than
2 percent a year), as well as a ceiling on how much the rate can go
up during the life of the loan (i.e. no more than 6 percent). With
these protections and low introductory rates, ARM loans have become
the most widely accepted alternative to fixed-rate mortgages.
Hybrid
loans
Hybrid loans combine features of both fixed-rate and
adjustable-rate mortgages. Typically, a hybrid loan may start with a
fixed-rate for a certain length of time, and then later convert to
an adjustable-rate mortgage. However, be sure to check with your
lender and find out how much the rate may increase after the
conversion, as some hybrid loans do not have interest rate caps for
the first adjustment period.
Other
hybrid loans may start with a fixed interest rate for several years,
and then later change to another (usually higher) fixed interest
rate for the remainder of the loan term. Lenders frequently charge a
lower introductory interest rate for hybrid loans vs. a traditional
fixed-rate mortgage, which makes hybrid loans attractive to
homeowners who desire the stability of a fixed-rate, but only plan
to stay in their properties for a short time.
Balloon
payments
A balloon payment refers to a loan that has a large,
final payment due at the end of the loan. For example, there are
currently fixed-rate loans which allow homeowners to make payments based
on a 30-year loan, even thought the entire balance of the loan may be
due (the balloon payment) after 7 years. As with some hybrid loans,
balloon loans may be attractive to homeowners who do not plan to stay in
their house more than a short period of time.
Time
as a factor in your loan choice
As has been discussed, the length of time you plan to own
a property may have a strong influence on the type of loan you choose.
For example, if you plan to stay in a home for 10 years or longer, a
traditional fixed-rate mortgage may be your best bet. But if you plan on
owning a home for a very short period (5 years or less), then the low
introductory rate of an adjustable-rate mortgage may make the most
financial sense. In general, ARMs have the lowest introductory interest
rates, followed by hybrid loans, and then traditional fixed-rate
mortgages.
FHA
and VA Home Loans
U.S. government loan programs such as those of the Federal
Housing Administration (FHA) and
Dept. of Veterans Affairs (VA)
are designed to promote home ownership for people who might not
otherwise be able to qualify for a conventional loan. Both FHA and VA
loans have lower qualifying ratios than conventional loans, and often
require smaller or no down payments.
Bear
in mind, however, that FHA and VA loans are not issued by the
government; rather, the loans are made by private lenders but insured by
the U.S. government in case the borrower defaults. Remember too, that
while any U.S. citizen may apply for a FHA loan, VA loans are only
available to veterans or their spouses and certain government employees.
VA loans are guaranteed by U.S.
Dept. of Veterans Affairs. The guaranty allows veterans and
service persons to obtain home loans with favorable loan terms,
usually without a down payment. In addition, it is easier to qualify
for a VA loan than a conventional loan. The U.S. Department of Veterans Affairs
does not make loans, it guarantees loans made by lenders. VA
determines your eligibility and, if you are qualified, VA will issue
you a certificate of eligibility to be used in applying for a VA loan.
VA-guaranteed loans are obtained by making application to private
lending institutions.
