Purchasing a home?
We’ll get to payday loans but let’s start with home loans. The key to purchasing a home is first understanding the different types of loans, and then deciding what loan best fits your needs.
There are many types of mortgages
For example, if you intend to keep your home for several years, and you are purchasing your home while interest rates are low, then a fixed rate mortgage might be exactly what you need. On the other hand, if you intend to stay in your home for a short period of time, then you might consider either an adjustable rate mortgage or a balloon loan. Be sure to fully explore the possibility that you might qualify for government assistance if you are a veteran, or you fall into a low to moderate income bracket.
The different types of loans are discussed below. Keep in mind that this is just a brief overview of each type of loan, and that you should fully understand the terms and conditions of your loan prior to signing any loan documents. Be sure to read all loan documents and disclosures provided to you by your lender. If something is vague or confusing, be sure your lender clarifies it for you. In the meantime, if you need a short term loan and don’t want your credit affected for your mortgage loan, try payday loans.
Fixed Rate Mortgage
A fixed-rate mortgage ensures that the interest rate of your loan remains the same over the life of the loan. The benefit to a fixed rate mortgage is that while interest rates may increase, your initial interest rate remains the same. If interest rates fall below the rate of your loan, you can always refinance your loan at the lower interest rate.
The typical term for a fixed rate mortgage is 30 years. The benefit to a 30 year loan term is that it provides you with maximum tax advantages with the greatest interest deduction. The 30-year fixed-rate mortgage is typically the easiest type of loan to qualify for.
If you shorten the length of your mortgage, you typically benefit by getting a lower interest rate. There is a 20-year fixed rate and a 15-year fixed rate. Another benefit to a shorter term loan is you are able to pay off your loan quickly. The downside to a shorter term loan is that it increases the monthly amount you pay. For a really short term loan that won’t increase the monthly amount you pay, look into payday loans.
Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage (”ARM”) offers an initial fixed interest rate with an initial fixed monthly payment. The word “Initial” is the key to this type of loan because after a predetermined initial period, the loan is subject to change due to fluctuations in market conditions.
The benefit to this type of loan is that during the predetermined initial period of time, the initial interest rate you pay will probably be lower than a fixed-rate mortgage. The downside to an ARM is the uncertainty that comes after the initial period.
An ARM may be a good option for buyers who only plan to stay in their home for a short period of time, because if the buyer turns around and sells the home before the initial fixed-rate period expires, they may benefit from a lower rate.
With regards to how often the interest rate adjusts with an ARM depends on the terms of the loan. If you are considering this type of loan, you need to pay close attention to the length of the predetermined initial period. For example, a 5/1 ARM means that your interest rate remains the same for the first five years and then adjusts to reflect fluctuations in market conditions starting on the sixth year. A 3/3 ARM would offer an initial fixed rate for three years and then would adjust every three years starting at the fourth year.
If the loan is an ARM, the lender must provide the borrower with a written disclosure describing how the loan works. If the loan contains an adjustable rate, the lender is required to supply the borrower with the “Consumer Handbook on Adjustable Rate Mortgages,” and the borrower must sign a form confirming that they received the handbook.
Balloon Loan
The balloon loan is a short-term, fixed-rate loan that allows borrowers to make small payments for an introductory period of time, typically five, seven or ten years. After the introductory period, the borrower must either refinance the loan or pay off the remaining balance in one lump-sum (”balloon”) payment.
Government Loans
There are three types of government loans. There is the FHA, the VA and the RHS loan.
A loan insured by the Federal Housing Administration (“FHA”) is available to qualified homebuyers. There are limits to the amount of FHA loans, but they are typically enough to cover most moderately priced homes. One of the benefits of an FHA loan is that it typically offers a low down payment.
A loan guaranteed by the Department of Veterans Affairs is known as a (“VA”) loan and is a long-term loan offers a low or no-down-payment. It is insured by the VA and is only available to qualified military veterans who have obtained a certificate of eligibility from the Department of Veterans Affairs.
The Rural Housing Service (RHS) loan offers low interest rates with no down payment. It is available to households with low to moderate income located in rural areas or small towns.
To learn about how payday loans work, click here.
Wow. This is really great information. All of this can be so confusing to a first-time home buyer. Thanks for the help.
Information like this is great. It’s those adjustable rate mortgages that are causing many people problems. If it wasn’t for payday loans many would have missed mortgage payments and messed their financial situation up.
There is a lot of confusing in the lending market about the types of loans available and this article does a good job in explaining the various types. The H.R. 3221 (Housing & Economic Recovery Act)Bill pretty much shut down the Down Payment Assistance Programs that were once available, so we saw a many people turn to alternative lenders for their downpayments, such as peer-to-peer lenders like Proper.com, etc. No one really knows how all of this is going to play out, but one thing for sure, we’ll all be around to see the outcome.
Correction on the spelling for the peer-to-peer lender. It should be Prosper.com. My fingers sometimes run ahead of my thoughts.
I was searching this topic for past few days.Now I got very clear description from your articles.Thanks for providing for us.
Hi,
The specific uses of the terms “insurance” and “assurance” are sometimes confused. In general, in these jurisdictions “insurance” refers to providing cover for an event that might happen (fire, theft, flood, etc.), while “assurance” is the provision of cover for an event that is certain to happen.