As you work with your Lender for the best financing when purchasing real estate, you’ll come across a variety of different loan products. Here’s a quick look at each of the types of home loans available:
Adjustable Rate Mortgage
Adjustable rate mortgages have an interest rate that is adjusted at certain intervals, based on a specific index during the life of the loan. The amount of interest you pay can go up and down.
Balloon Payment Loan
This is a fixed rate loan that is amortized over 30 years, but becomes due and payable at the end of a certain term. Five, ten and fifteen year balloon payments are common term periods. Your loan may be extended or roll-over into another loan product, depending on your loan details.
Buy-down loans have a fixed rate, but the interest rate and payment are reduced for a specific period of time (often 3 or 5 years) by passing the interest up front to subsidize the lower payment.
Community Home Buyers Program
This is a fixed rate loan designed for first-time home buyers. It has a low down payment (usually 3-5 %); small or no cash reserve requirements (down payment), and easier qualifying ratios. Loan approval is subject to the borrower meeting income limits and often the attendance of a four hour training course on home ownership.
Conventional loans have a minimum down payment and standard guidelines. These are sometimes more lenient with the appraisal and condition of the property. When you are buying a ‘fixer upper’ you may need to use a conventional loan instead of a FHA loan.
FHA loans are insured by the Federal Housing Administration under HUD (US Department of Housing and Urban Development). An FHA loan offers a low down payment and is easier to qualify for than a conventional loan. If you have a lower credit score, this loan may be an option for you.
Fixed Rate Loan
A fixed rate loan (can be conventional, community, or FHA loan) has one set interest rate that remains constant throughout the life of the loan.
Graduated Payment Mortgage
This is a fixed rate loan with payments starting lower than a standard fixed rate loan. The payments increase by a pre-determined amount each year for a set number of years. This product can be useful when you have a lower income starting out but are confident your income will increase as time goes on.
Mortgage Credit Certificate
Created for first-time home buyers, this is a program subject to both purchase price and income limits, usually in specific geographic areas. It is actually a special tax credit that assists homebuyers to qualify for many loan programs.