| Every year, thousands of people ask themselves the | | | | After the initial term, the interest rate will change |
| question of how to find the best home loan. Most | | | | periodically according to financial markets. |
| people would agree that a home loan is one of the | | | | It is important to understand that ARM contracts can |
| biggest investments the average consumer will make | | | | vary greatly. You will certainly want to see if the |
| in a lifetime. Having the wrong home loan can be | | | | contract includes caps on the level of interest that can |
| expensive, and it can even lead to foreclosure if the | | | | be charged. A contract without a cap could lead to |
| payments cannot be made on time. Understanding | | | | disaster. |
| what the various types of home loans are is the first | | | | Federal Housing Authority Loan or FHA: The Federal |
| step to finding the best home loan. | | | | Housing Authority (FHA) does not actually loan money |
| In general, there are seven types of common home | | | | to buyers but rather it insures loans for lenders. By |
| loans. There are, of course, unique hybrid loans which | | | | backing up the loan, the FHA programs allow lenders |
| can be negotiated, but for the most part home loans | | | | to justify larger loans with smaller down payments. |
| will fall into one of these categories: | | | | The amount that the FHA will back up varies from |
| The Conventional Mortgage: This is a fixed rate loan | | | | region to region so make sure you explore what is |
| through a commercial lender for a term of 15, 20, or 30 | | | | available to you by reading the proper criteria. |
| years. The commercial lender is usually a bank or a | | | | VA Loans or Veteran Affairs Loans: According to |
| mortgage lender. The amount of the monthly | | | | their literature, "The Department of Veterans Affairs |
| payments, the interest rate, and the terms of the loan | | | | provides guaranteed loans for qualified veterans and |
| are locked in by the home loan contract. If the buyer | | | | servicemen". What is so special about these loans is |
| does not have at least 20% for a down payment, | | | | that they allow the qualifier (the buyer) to offer little or |
| these loans require private mortgage insurance, also | | | | no down payment for the loan. There are some |
| known as PMI. | | | | restrictions and these loans are subject to the VA |
| ARM or Adjustable Rate Mortgage: In many respects | | | | mortgage fee which is dependent on the size of the |
| the ARM is similar to a conventional mortgage. What | | | | down payment. The VA mortgage funding fee is |
| changes in the ARM is the interest rate. While the | | | | usually equal to 2% of the loan amount for the |
| interest rate for a fixed rate loan will not fluctuate, the | | | | first-time buyer. The VA funding fee may be waived |
| interest rates for an ARM will. ARM mortgages adjust | | | | for disabled veterans. |
| up or down, according to the terms of the contract. | | | | |