Types of Home Loans


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USDA-Home-Loan

If you’re in the market for a home, chances are high that you are not paying cash for it which means you will need to get a mortgage.  There are two basic types of mortgages, conventional and government sponsored.

Conventional mortgages are come in two basic varieties, fixed rate mortgages (FRM) and Adjustable Rate Mortgages (ARM).  As the name suggests, fixed-rate mortgages have a set interest rate that stays the same throughout the length of the loan.  Usually fixed-rate loans are paid off over either 15 or 30 years.  These tend to be the most popular home loans.

In an adjustable rate mortgage the interest rate rises and falls throughout the length of the loan.  Typically, adjustable rate mortgages have a lower interest rate than fixed-rate mortgages, especially for the first year or so, but they can be risky, depending on the market and how long you plan to stay in your home.

With conventional mortgages, you are typically required to make a down payment of twenty percent.  Buyers who aren’t able to put that much down are required by their lenders to pay for private mortgage insurance (PMI) until you’ve paid down a full twenty percent of the home’s value.  PMI increases the monthly payment, and should usually be avoided if at all possible.

The other type of mortgage is though loan programs sponsored by the government.  These include Federal Housing Administration (FHA) loans, Veteran’s Administration (VA) programs for veterans, and Rural Housing Service (RHS) programs for families living in rural areas.  Government sponsored loans are intended for homebuyers with low income.  Most of these programs require low down payments and have more lenient qualification terms than conventional loans.  To finance a home through any government sponsored loan program, you still have to go through traditional banks or mortgage lenders to get your money.  In these cases, the government does not actually lend the money, they just guarantee the loans.

Thinking of buying of selling a home in Sussex County? Give us a call at Cooper Realty Associates and put us to work for you – 302-644-2266.

 

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