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Home Loan FAQ
Most people feel a little overwhelmed when taking out a home loan. There are many new terms and processes that seem challenging. While taking out a home loan can be a challenge, but understanding the options and what they mean, you can go through the process with greater ease. When it comes to loans, you will have several great options and depending on your particular situation, the lender will work with you to choose the right option. Additionally, various programs are always being offered through the government or private lenders, which will help you in the process as well. The primary loans that you will be presented with include the following:
  • Fixed Rate Loans (FRL) - With this type of mortgage loan, the interest rate and monthly payment are always the same each month. You will have the option of spreading the loan out for 10, 15, 20, 25, 30, or 40 years, which is called amortization. You will find this option comes with many benefits in that you receive a fixed rate that is spread out over a designated amount of time without ever having to worry about what market change will do to your payments. If you are looking for a home where you can live for many years, this is the ideal loan. Additionally, while good credit is better, an FRL is available to people with both good and bad credit.

  • Fixed Rate Balloon - With this type of loan, the interest rate and monthly payment will remain the same until the loan is due, which is generally after a 3, 5, or 7-year period. One of the advantages of this program is that interest rates will usually go down because the overall balance has to be paid off or refinanced when it reaches its full term. Generally, this type of loan would be offered to people who plan to live in their home no more than 7 years.

  • Adjustable Rate Mortgage (ARM) - For the ARM, the interest rate and monthly payment will stay the same but only for a determined fixed amount of time, which might be 1, 3, 5, 7, or 10 years. At the end of this time, the rate can be raised at fixed intervals. The amount that the rate is raised will be predetermined, based on a to 2% rise per interval. Additionally, the intervals will be 1, 3, 6, or 12 months. In most cases, the rate will have a cap so you are protected from it going higher and higher. The ARM also has a nice advantage in that you can get a lower rate for a specified amount of time, which allows you the opportunity to watch the market to see if rates will stabilize or get better. Typically, this type of loan would be best for individuals who plan to stay in the home for a determined amount of time.

  • Buydown - For this loan, the interest rate and monthly payment will stay the same for a fixed amount of time. At the end of that time, both interest rate and payment will increase. These amounts can be increased as many as three times and once all have occurred, the final interest rate and monthly payment will be the permanent numbers for the life of the loan. A Buydown is recommended for buyers who may not qualify for a FRL or for buyers that need payment options that are more affordable.
While the loans mentioned are the most commonly used, other types of loans include:
  • Conforming - Loan conforms to government standards determined by Freddie Mac and Fannie Mae

  • Jumbo - This loan is non-conforming and above the $227,150 range

  • Investment Properties - Typically, homes are purchased for investment purposes

  • B.C.D. Credit - This type of loan is designed for people with less than perfect credit

  • No Document or Low Document Loans - In special circumstances when a buyer is unable or is having difficultly showing their income on paper to the lender, this loan is an option
Because you have several good options for buying a home, it is important that you work with a qualified and reputable lending or mortgage company. If you are a first time homeowner, keep in mind that you will have a loan limit of $300,000 but there are several outstanding loans available specifically for you that offer low down payments of 3% to 5%.

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