Types of Mortgage Loans (How to shop for a loan)

There are a variety of mortgage loans available depending on the shopper's needs.

The Federal Housing Administration (FHA), Veterans Administration (VA) and Rural Housing Service (RHS) are all Government loans that come with requirements and have a statutory limit. It is much easier to qualify for an FHA loan since they require a lower down payment and offer a variety of loan programs.

The VA loans are guaranteed loans made by lenders with the maximum amount being $203,000. The home buyer must apply to a private lending institution before the US Department of Veterans would become involved.

The US Department of Agriculture guarantees loans for rural residents with no down payment and very little closing costs.

There are also state and local housing progams available for those who qualify, especially first time buyers. These loans come with low down payments and some qualify for a Mortgage Credit Certificate (MCC) which gives a tax credit for some of the paid interest. The loans are usually fixed mortgages at a lower interest rate than the market.

Conventional loans are loans other than the above. They can be obtained at a fixed rate for a 10, 15, 20, 25, and 40 year period. The 15 year period, let's say will pay off your loan twice as fast as a 30 year fixed loan as long as you qualify. Naturally the payments will be higher at 15 years than it would be for 30. There are also bi-weekly mortgage plans to save the borrower 10 or 11 years on a 30 year loan.

For some, adjustable rate mortgages are more convenient since the interest rate and monthly payments flutuate over the length of the loan. These loans mostly begin with a very low interest rate and monthly payment which in time changes depending on the index.

Balloon loans come with fixed monthly payments and a lump sum payment at the end of a 3, 5 or 7 year term. Although these loans may be appealing, it is not always easy to come up with a lump sum in the allotted time. Keep away from these loans if you know that a lump sum will not be forthcoming.

So these are some of the choices. Give them some serious thought before committing because this is a lifetime commitment and you would want to keep it a happy one.

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