Financing Guide

If you’re planning on buying a home, there are many types of financing options available, each with their own advantages. Generally, all you need to remember is that a “mortgage” is a loan that you obtain to purchase a house and pay back over a pre-determined period of time. Mortgage brokers, banks, and other financial institutions that provide you with the actual funds are known as “lenders.” There are different kinds of mortgages, and you should choose the one that suits you the best.

A Fixed-Rate Mortgage basically guarantees that the monthly payment remains the same for the life of the loan, which is typically for 15 to 30 years. This type of mortgage is best for those who don’t like risks, and you should consider this type if you plan to live in your new home for many years and you’d prefer to pay the same amount every month.

An Adjustable Rate Mortgage, or ARM, differs from fixed-rate mortgages in the sense that its interest rate is adjusted at specific time intervals to reflect the current market. This results in making your mortgage increase or decrease over time. If your income isn’t sufficient enough to cover the required maximum payments, then it’s recommended that you not choose this type of mortgage.

A Convertible Adjustable Rate Mortgage is a combination of fixed and adjustable mortgages. Here, the rate will stay fixed for the first three, five or seven years, and then will be adjusted annually for the duration of the loan. If the initial interest rate is low and the future rate is not guaranteed, but you have the income to cover market fluctuations, then choosing this type of loan is recommended.

 Government Loans, which have much better interest rates. Government loans require that certain conditions be met with regards to the property or the buyer. If you meet these conditions, then you might want to consider this option. You should also check the terms of a government loan carefully, because they often contain a back-end clause that requires you to pay a percentage of the sale price back to the government.

 The Federal Housing Administration offers loans with lower down payments. FHA loans often have a cap on how much can be borrowed, and mortgage limits can also vary by community, so it’s recommended to find out more about your options with this type of loan.

VA Loans are for eligible veterans who qualify for a loan from the Department of Veterans Affairs. No down payment is required for a VA loan, with no monthly premium for mortgage insurance, but there is a funding fee, which may be financed.

 

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