Types Of Mortgages

Homeowners facing foreclosures have the economy to blame for their misery. Layoffs, rising interest rates, decreasing property values, etc. contributed to the highest levels of foreclosures to date. However, not all of them are victims of the recession. There are delinquent borrowers who had lived beyond their means, and are ignorant of the kinds of mortgages they can get. Obama housing bailout plan is not the one for all solution to this problem of foreclosure. Before deciding what color of paint you want when you renovate your house, decide on how much you can realistically afford and what kind of mortgage is best for you.

Government Mortgage Loans
FHA Loans – These are loans granted by the Federal Housing Administration or the FHA under the US Department of Housing and Urban Development or HUD. In general, FHA loans have lower qualifying standards compared to the conventional loan. A positive feature of this loan is the low down payment required in buying a property. All citizens can apply for this loan.

VA Loans – The US Department of Veteran Affairs are the guarantors of this type of loan. As part of the benefit of entering the service, army, marine, naval and air force personnel and servicemen are qualified to apply for this loan. It is generally easier to qualify for this loan than conventional loans. The VA itself is not the lender but rather, it guarantees the loans you make. A limit of $203,000 is set per loan application.

RHS Loans – The Rural Housing Service or RHS under the Department of Agriculture are the guarantors of loan made by rural residents. Rural residents are not required to put up downpayments and they pay minimal closing costs.

State and Local Housing Loans Program
For first time home buyers, you should check out your local housing programs. These are usually fixed rate loans that require lesser downpayments and have lesser interest rate than the market.

Conventional Loans
Conforming Loans – Borrowers of conforming loans have to abide by the terms and conditions set by corporations, Fannie Mae and Freddie Mac. Their maximum loan amount is greater than the government guaranteed loans at 417,000 for one-family but qualifying could be harder for some.

Jumbo Loans – Loans that are greater than the set maximum limit established by Fannie Mae and Freddie Mac are called Jumbo Loans. These loans are limited to a few borrowers and the interest rates added to these loans are greater than those of conforming loans.

Fixed Rate Mortgages – FRM loans are favorable because of the fixed rate. An advantage of this loan is the shorter the term, the lower the interest rate added to the principal.

Adjustable Rate Mortgages – Adjustable loans vary in interest rate depending on several factors affecting the market. The loan is more beneficial to lenders because their margins are intact whichever way the market goes, up or down. To protect borrowers from too much increase in monthly payments, interest rate caps are established.

Homeowners should do their research and educate themselves in mortgages and financial planning to avoid foreclosure threats. If more people did their homework before they got blinded by dream houses they can’t afford, the Obama housing bailout plan would not be necessary.

By: Don Robert

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The author is fascinated by things that are simple and minimal. He likes minimalist art, lives a simple lifestyle and writes things that are light and easy to read. For more information and queries, you may visit FHA loans