Speak the same language – Learn the lingo of loans.
Government or conventional loans: The United States is a large player in the residential mortgage market. About 20 percent of home loans are either guaranteed or insured by an agency of the federal government. These mortgages are also called government loans. The remaining 80 percent of residential mortgages are referred to as conventional loans. These loans are mortgage loans usually provided by lenders who are not government-sponsored such as the FHA, VA or RHS.
· Federal Housing Administration (FHA): Set up in 1934 during the Great Depression to encourage the U.S. housing industry, this body encourages people of low-to-moderate income to get mortgages by giving federal insurance against losses to those lenders who make FHA loans. The FHA, however is not a money lender. In fact, borrowers must look for an FHA-approved lender such as a bank or financial institution that will give them a mortgage which the FHA will then insure.
· Department of Veterans Affairs (VA): This provision enables people on active duty and veterans to buy homes. The VA does not have money of its own but acts as a lender that guarantees mortgages and loans granted by lending institutions. In fact, VA loans are usually sponsored by the U.S. Department of Veteran Affairs. They offer competitive interest rates, little or no down payments and very little declaration of income.
· Farmers Home Administration (FHA): Like the above two bodies, this one too is not a direct lender. Contrary to its name, one doesn’t have to be a farmer to obtain a loan from this institution. But you do need to buy a home in the countryside for which the FHA insures mortgages. These loans come with minimal down payment and are easier to obtain than others. These loans are FHA loans are overseen by the Federal Housing Administration.
These loans come from lenders with attractive features such as minimal cash down payments, long loan terms, penalty-free if you repay before time, and lower interest rates. But these loans are targeted towards specific kinds of home buyers, have comparatively low maximum mortgage amounts, but take very long to obtain approval.
Apart from these three basic loan types, you can also choose from:
· Fixed rate loans: Easy to qualify for, lenders to this mortgage offer you this loan which comes in 20 and 30 year schemes and gives you a good chance to keep your mortgage payments easy on the pocket over a long duration. If you plan to live in your home for several years and keep your expenses at a minimum, this loan is for you.
· Adjustable rate loans (ARMs): Though this loan scheme has a low adjustable rate, it is not unusual for lenders to give you a maximum period of 10 years for repayment. The rule is that the low start rate means a short time before you start paying the first mortgage installment.
· Combination (hybrid) loans: These loans combine a fixed rate with ARM loans. They have a built-in delayed adjustment period of which the initial period is fixed. They carry very little risk—usually lesser than one year and come with an interest rate that’s lesser than fixed-rate loans. Though they begin as fixed rates loans, they adjust to ARM after a few years. This is meant for people on the move as lenders of a combination loan allow buyers to make use of low interest rates for repayment in the initial years of the mortgage scheme.
· Balloon mortgages and pledge asset loans: Here, your monthly mortgage installments are based on a fixed term up to 30 or 15 years amortization. At the end of this balloon period, your lender will tell you that the remaining mortgage loan amount is due for payment. Pledged asset mortgages are loans meant for those with sufficient income to pledge their investments as collateral in place of a cash down payment.
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