Whether you're buying your first home or you're interested in
refinancing your existing home, this is where you'll learn all
about the basics of financing. There are many different types
of home loans that you may get. Here is a sampling of the most
The interest rate is set at the time the mortgage is obtained and
does not change for the life of the loan.
mortgage (ARM). The interest rate fluctuates up and down
depending on market conditions, with the beginning rate always lower
than fixed-rate mortgages. Buyers who need a lower interest rate
or monthly payment to qualify typically look for this type of loan.
These Federal Housing Administration/Veteran's Administration loans
offer low to no down payment. Qualifications, however, are strict.
To get a VA loan the borrower must have been on active duty during
specific periods of time. Check with your lender.
A 30-year mortgage that is fixed-rate for the first few years, then
switches to an adjustable rate. For example, the interest rate might
be fixed for the first 3, 5, 7 or 10 years. After that period, it
switches to an adjustable rate. The advantage is that the short
fixed-rate period results in a lower initial interest rate. For
example, a 10-year fixed two-step might have an initial fixed rate
that is 1/8% lower than market. A 3-year fixed two-step might have
an initial interest rate that is 1û2% lower than market.
A mortgage that conforms to the underwriting standards of the two
major secondary lenders, Fannie Mae and Freddie Mac. Currently the
maximum loan amount is $240,000. These are considered the best loans
because they offer the lowest interest rate. However, they only
go to the most qualified buyers. They may be "fixed-rate,"
"ARM," or some hybrid.
A loan for more than the maximum conforming amount (above). These
loans can be for huge amounts, sometimes up to a million dollars,
or more. They usually carry a slightly higher interest rate.
A mortgage made available to a borrower who has credit problems.
Also called "B" or "C" loans, they usually carry
a significantly higher interest rate than for prime mortgages and
are for a lower LTV (see above). Only certain lenders offer them.
Check with your mortgage broker.
(or Equity). Offered to seniors who own their home outright or only
owe a small balance on the existing mortgage. These allow the borrower
to receive a monthly payment from the lender, usually for life.
When the borrower dies, the lender sells the home to pay off the
Where the amount of the mortgage (LTV) is for more than the appraised
value of the property. These are usually combined real estate and
personal property loans. Be sure to check with your accountant before
getting one, however, as part or all of the interest may not be
tax deductible. If you need to sell soon after obtaining the mortgage,
you will likely have negative equity in the property (you will owe
more than the home is worth).
An additional mortgage, besides the first. Can be obtained from
an institutional lender. When given by the seller in lieu of cash
from the buyer, they are usually considered part of "creative
Where the borrower needs only minimum documentation of income to
qualify. Designed primarily to help self-employed borrowers. Not
always available and not from all lenders.