Mortgage Loan: Know the Type Loan Before You Get One
By Charles L Harmon
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For most of us who want to buy a house the usual way is to get a mortgage loan because we don’t have the cash to pay it all off without a loan. Also you might already have a home loan and want or need to refinance it.
What mortgage loan types are there for people who want to realize the American dream of home ownership or possibly get another loan because the interest rates have fallen or your circumstances have changed? There are several to choose from, and there are advantages to each. The major mortgage loan types are conventional, FHA, and VA.
Conventional mortgage loans are the easiest to understand and the most basic. When you get conventional mortgage financing for your home, you simply borrow a certain percentage of the price of the home (the sale price and fees minus any down payment) and agree to pay it back via monthly payments for a certain number of years.
FHA and VA loans are loans that are backed by the Federal Housing Authority and the Veterans Administration, respectively. These two groups both have the goal of helping more Americans realize the dream of home ownership. They work in cooperation with certain lenders and provide those lenders with mortgage insurance in case you default on your loan.
Generally, FHA and VA loans have a lower down payment, may have lower interest rates, and may be easier to qualify for. Also, with FHA and A mortgage loan types, the FHA and VA themselves set a lot of the parameters of the loan, such as how much of a down payment is needed, how much interest can be charged, inspections of the property in question, and so on. That is why not all lenders prefer to deal with FHA or VA mortgage loan types. The lenders have more control with conventional mortgage loan types.
Here’s a heads up for those looking for a new house with a VA loan and the builder doesn’t offer it. That was the situation with my new house. Not only that, the price of the home was too high for a VA approved loan. I was persistent, however, and asked if they could allow me to get a VA loan. At first they said no, but I offered to put a larger down payment than usual and they decided to give it a try. The house was built fairly well and easily passed the inspection required for a VA loan. If a VA loan is not offered by a builder just ask and you just might get it.
Another major difference in types of mortgages is whether the loan is a fixed-rate or variable-rate loan. A fixed-rate loan has one interest rate that is set and remains unchanged throughout the life of the loan. Some people prefer to have a fixed-rate loan, especially during times of a “buyer’s market” such as we have now.
Rates as well as housing prices tend to be lower right now, so it makes sense to get the lower rate and keep it forever, as interest rates are more likely to climb in the future, rather than decrease in the future. Also, knowing how much your payment is going to be helps you budget your finances more easily.
However, it is often more difficult to qualify for a fixed-rate loan, so some folks go with the adjustable mortgage loan type. Adjustable mortgages begin with one interest rate, but it is not necessarily going to remain the same throughout the life of the loan. Periodically, the interest rate can be adjusted to suit market conditions.
Depending on what is happening in the economy and what the prime interest rate is, an adjustable mortgage loan usually adjusts its interest rate (and often payment) up or down. Don’t expect it to go down, however, unless you are lucky or the interest rates are real high and fall fast.
My personal advice is never get any type of adjustable loan if there is any way to avoid it. It is not possible to make any long term plans if your loan can vary. There are some horror tales of loans increasing many hundreds of dollars a month and people losing their homes because of such huge increases. Don’t put yourself in that situation if you can avoid it.
There are also ways of financing that are known as unconventional mortgage loan types. There are many such types of loans. Some are relative newcomers to the home lending industry. You can find interest-only mortgage loans, balloon mortgages, and even reverse mortgage loan types. These are loans you’d better understand well before you try to get one.
You should be very familiar with the loan type you are getting and if any way possible read all the fine print. There could easily be a “hidden clause” in the fine print that could pose a potential problem for you. An example of such a clause is one that says you cannot prepay the loan, or prepay it without a penalty. Such a clause could be a real problem if the interest rates fall and you want to refinance it with a lower interest rate.
When you are searching for financing to make your dream home a reality, be sure to look into all mortgage loan types (and understand them) to see which is the best type of loan for your particular circumstances.
Copyright © 2011 HalfMoney.com
Charles is studying how to bringing luck and success in his Online Marketing.
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