Types of Home Loans
PRIVATE SECTOR
Conventional
Loans
1. Conforming
Loans
Conventional loans that follow
the terms and conditions established by the
guidelines of Fannie Mae and Freddie Mac.
Fixed-Rate Mortgage
The
interest rate and the principal payments remain
fixed throughout the loan. Keep in mind your
monthly escrow account payment could vary from
year-to-year as taxes and insurance rates
change.
Variable or Adjustable-Rate
Mortgage
The interest rate on the
loan fluctuates over the period of the loan.
Periodic adjustments to the interest rate are
made based on changes to a defined index. The
loan's interest rate is determined by adding a
fixed number of points to the defined index.
Balloon Loan
Short term,
fixed-rate mortgage that has monthly payments
usually based on a 30-year amortization schedule
and a lump sum payment due at the end of term,
usually 3, 5 or 7 years. The interest rate on
balloon loans is usually less than a 15- or
30-year fixed-rate mortgage.
Piggyback Loan
A second
mortgage that closes with the first. Often the
first mortgage is for 80% of the purchase price
and the "piggyback" is for 10%. The home buyer
covers the remaining 10% with their down
payment. (Some lenders will write a second
mortgage of 15% or even 20% of the purchase
price.)
Housing Finance
Agencies
These agencies offer
special loan programs to low- and
moderate-income buyers, buyers interested in
rehabilitating a home in a targeted area, and
other groups as defined by the agency. Working
through a housing finance agency, you can
receive a below market interest rate, down
payment assistance and other incentives.
2. Jumbo and
Non-Conforming Loans
Loans above the
maximum amount established by the guidelines of
Fannie Mae and Freddie Mac. Often the interest
rate charged for a jumbo or non-conforming loan
is higher than that of a conforming loan.
GOVERNMENT
FHA
Loans
The Federal Housing Authority
(FHA), which is part of the U.S. Department of
Housing and Urban Development (HUD), plays a
significant role in helping low- to
moderate-income families qualify for mortgages.
FHA assists first-time buyers and others who
would not qualify for a conventional loan, by
providing mortgage insurance to private lenders.
Interest rates for an FHA loan are usually the
going market rate, while the down payment
requirements for an FHA loan are lower than
conventional loans. The required down payment
can be as low as 3 percent and the closing costs
can be included in the mortgage amount.
VA
Loans
VA Loans are guaranteed by the
U.S. Department of Veterans Affairs. Service
persons and veterans can qualify for a VA Loan,
which usually offers a competitive fixed
interest rate, no down payment and limited
closing costs. While the VA does not issue the
loans, it does issue a certificate of
eligibility required to apply for a VA loan.
RHS Loan
Programs
The Rural Housing Service
(RHS), which is part of the U.S. Department of
Agriculture, guarantees loans from private
lenders to help low- to moderate income families
qualify for mortgages.
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