Different types of Loans

If you are considering a real estate purchase, the first thing that will need to be addressed is getting financing. There is a ton of mortgage options that are available in the market today, making it very necessary for anyone to educate themselves on the differences between them in order to get the best possible loan for their needs.

One of the most popular home financing options today is the traditional fixed rate mortgage. This is actually the loan of choice in nearly 70 percent of home purchase transactions in today's market. One of the biggest reasons that people like a Fixed Rate Mortgage is because of the stability that comes with it. The interest rate is locked in and remains the same throughout the term of the loan, regardless of the changes that may happen to the market. This allows the new buyer to rely upon a stable monthly payment every month on the principle and interest throughout the term of the loan, whether it's a 15 or 30 year loan.

Adjustable rate mortgages, or ARMs, are another option that has become quite popular in real estate transactions. These loans have an interest rate that is tied to an index, changing with prevailing market rates. Generally, certain intervals at which the interest rates are adjusted are specified in the loan contract. If the prevailing market rate has increased from one adjustment period to the next, the monthly loan payments will rise. If interest rates have fallen, so too will the consumer's payment. Often, there are caps placed on the amount that the rate can change during each adjustment period, and some carry a lifetime cap, limiting the amount rates can be increased over the term of the loan. Be careful if you decide to get an adjustable rate mortgage that your payment will fluctuate depending on the market rate.

Government Guaranteed Mortgage Loans

The FHA loan is a fixed rate mortgage that is designed especially for the first time home buyer with moderate or low income. FHA loans are guaranteed by the Federal Housing Administration, these loans can be easier to qualify for than a traditional FRM and allow a smaller down payment than most other home loans, normally about 3 percent. Interest rate are usually lower than standard fixed rate loans, and programs are available for the purchase of single family homes or multi-family homes, as long as they are to be owner occupied.

VA loans are another government guaranteed mortgage. In order to be eligible for a VA loan, one must have a history of active military service or be the surviving spouse of an active service member. Often, a veteran can obtain a VA loan with little or no down payment, but must demonstrate the ability to make monthly payments.

The USDA Rural Development Guaranteed Housing Loan is another government guaranteed home loan option. This type of home mortgage loan is provided to low and moderate income individuals who are purchasing a home in an area designated as a Rural Development eligible area. No down payment or mortgage insurance is required with this loan program, and qualification can be much easier than your average home loan, allowing consumers with less than perfect credit to obtain financing for home purchases. Make sure that if you are inquiring about a USDA loan that it is available in the area you are looking to buy. You can check with your Loan Officer and they will have all the answers about if a certain neighborhood qualifies for USDA mortgages or not.

Option ARMs

Also referred to as flexible payment ARMs, Option adjustable rate loans have an interest rate that adjusts every month with no adjustment caps. These loans allow borrowers to make very low mortgage payments initially, but these monthly payments will rise over time, often quite steeply. I would caution you that if you choose to get an Option Arm Loan that you have money in reserves in case you get surprised one month with a higher than expected monthly payment.

Balloon Mortgages

Balloon mortgages are structured with a payment schedule similar to that of a thirty year fixed rate loan, although the term of the balloon loan is shorter, most often spanning five to seven years. At the end of the loan term, the outstanding balance must be paid in one lump sum, either out of pocket or by refinancing the home. This could be a good choice if you are in the military and want to buy a house. If you don't know if you're going to be in a home for a long amount of time you might want to look at this option. They normally offer good interest rates. However beware of the end date on the balloon mortgage because you will either have to refi it at the end or pay it off completely and trust me time flies and it will go faster than you think it will.

Interest Only Mortgages

Interest only mortgages are loans that allow the borrower to pay only the interest on the loan for a predetermined period of time. The principle of the loan is not paid down during this period at all, leaving the homeowner a lower monthly payment to meet over the short term. However, once this initial interest only period expires the payments increase to include repayment of the principle and are steeper than a standard loan, as the principle must be paid over a shorter time period. The longer the interest only period, the higher the payments will rise after its expiration.

If you are looking to buy a house you will need to be familiar with all the different loan types that are out there. I know it can be overwhelming. The best thing to do is talk to your loan officer about all the different options for loans. HomeBackers is one of the top Real Estate Companies in the Greater Dayton Ohio Area that can refer you to the best Loan officers in the business. We only work with the best that give you the best customer service and bang for your buck. You can contact HomeBackers at 937-754-1111 or visit us online at http://www.HomeBackers.com