Choosing the right type of home mortgage loan is an important factor in the purchase of a home and with the correct choice of mortgage the home buying experience will be a positive one.
These are some of the more common mortgage loans available at this time to help guide you in the decision making process:
FHA Mortgage Loans With government backing, families can buy a home at a lower initial cost. It is a good program for first time home buyers. A FHA mortgage allows some borrowers to qualify for the lower interest rates of a conventional loan. This can save thousands in interest charges. Required down payments are also smaller. Instead of the typical 10% down, a buyer can put down as little as 3%. The closing costs can also be financed with the mortgage, lowering the initial costs of purchasing a home. The FHA also limits fees that can be charged to the borrower. For example, the loan origination fee cannot surpass 1% of the mortgage amount.
The FHA provides mortgage insurance, not mortgage loans to families. The program also encourages lenders to finance mortgages for people who might just miss the underwriting requirements. For example, FHA loans require a smaller down payment.
FHA loans are not for everyone. For instance, the FHA sets loan limits to ensure the program serves low to moderate income families. You also have to use the house as your primary residence.
The VA Home Loan Program for Military Veterans The VA home loan can be used to purchase a new home or refinance an existing one and is available to all honorably discharged veterans and active duty military. The Department of Veterans Affairs (VA) does not actually lend out money but they guarantee or insure the funds that are loaned to you by a VA approved financial institution. You can go to any bank or mortgage company that participates in the VA loan program to apply. The VA home loan offers several advantages over a conventional home loan. One of the most significant benefits is that VA loans do not require a down-payment. As of January 1st, 2006 you can buy a home for up to $417,000 with no down-payment and in most cases the VA interest rate is comparable with or even lower than conventional loan rates. VA also allows the seller to pay all of your loan closing cost up to 6% of the loan amount conventional loans. VA home loan participants also enjoy the luxury of not having to pay mortgage insurance. In contrast, with a standard conventional loan you will have to pay mortgage insurance if you put down less than 20% as a down-payment.
The Fixed-Rate Mortgage A fixed mortgage has many benefits and advantages over an adjustable rate loan. The rate you start with is the rate you end with, even if the term of the loan is for 15 or 30 years down the road. This is significant. Mortgage lenders evaluate borrowers on an individual basis, based on a variety of factors. These factors include the borrower's credit score, income level, current level of debt, and the affordability of the home loan they're trying to obtain. So even if a particular lender advertises that they have the best rates around on fixed-rate mortgage loan, it doesn't necessarily mean that everybody is going to qualify for those best rates. It all comes down to how well you qualify, given the lender's evaluating criteria.
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