Tips and Articles

Financing That Fits

Arranging financing to pay for your new home is easier than ever. Gone are the days when borrowers went begging to the bank, hat in hand. Today, lenders offer competitive rates and a variety of mortgages from conventional 30-year loans to those with zero interest.

Selecting a mortgage is a major financial decision that should be made only after careful consideration of your financial situation and your borrowing style. Start by determining how much you need to borrow and the maximum monthly payment you can afford. Next consider the various mortgage products available including:

Conventional Mortgage
A fixed rate conventional mortgage is one where the interest rate remains unchanged for the term of the loan - usually 15 to 30 years. This type of loan is popular with homeowners who want the security of knowing their monthly payments will never increase, with the exception of tax increases. Conventional loans are not insured or guaranteed by the government.

Adjustable Rate Mortgage (ARM)
Lenders tend to offer lower interest rates for adjustable rate mortgages (ARM), making them popular among the cash strapped. ARM’s offer an interest rate that is fixed for a set period of time (anywhere from six months to 10 years) and then adjusted yearly based on current market interest rates.

Balloon Mortgage
People who do not qualify for a standard fixed or adjustable rate mortgage can apply for a balloon mortgage, which requires borrowers to pay a fixed rate for a set period (often five years) before paying the balance in full. Borrowers who cannot pay the balance must arrange new financing or lose their home.

FHA-Insured Loan
The Federal Housing Administration (FHA) loan program allows homeowners to purchase a home with as little as 3% down - a great opportunity for first time buyers or anyone with minimum funds for a down payment. The FHA is not an actual lender. Loans are provided by private lenders and guaranteed by an insurance fund set up by the FHA.

VA Guaranteed Loan
Veterans, reservists, and those on active military duty can apply for loans guaranteed by the Department of Veterans Affairs (VA). The VA provides loans requiring little or no down payment.

Home Equity Loan
Homeowners can borrow against the equity that has built up in their house, paying a "floating" or adjustable rate of interest that is amortized over a period of years. This may be an option worth considering, especially if you plan to build before selling your existing home.

Rural Housing Service Loan

The Rural Housing Service (RHS) offers low interest mortgages to lower-income borrowers who want to purchase or build a single family home in a rural area. Loans require no down payment and are subsidized by the RHS to varying degrees depending on household income.

State Housing Finance Agency Loan
The State Housing Finance Agency (HFA) provides loans to first-time homebuyers, often at below-market interest rates. Program availability and eligibility requirements vary from state to state.

Today, there are an assortment of mortgage products and experts ready to put the perfect financing package together. Good luck and enjoy your new home!