Learn About Loans

The U.S. Government backs three lending agencies to help more Americans become homeowners: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans), and the U.S. Department of Veteran Affairs (VA loans). Each of these loan programs have different criteria that need to be met in order to qualify. These loans may require Private Mortgage Insurance (PMI), which may add to your payment amount.

ARM stands for adjustable rate mortgage. It means that your loan rate can adjust up or down with the market over time. The most attractive feature of an ARM loan is that they typically have an introductory period (3, 5, or 7 years), where the rate is often less than a 30 year fixed-rate loan. This could be a great option to consider until rates go back down, or if you won’t be staying in the home past the introductory period.

An assumable loan provides a buyer an opportunity to purchase a home from a seller by taking over their existing mortgage loan. If the seller has a 30 year fixed-rate loan at 3%, and the loan is assumable (not all are), then this could be a very attractive option to consider. The buyer will be responsible for paying down the difference between the sales price and current loan payoff, at closing. While this option may be a great way to get a lower rate, because assumable loans can have strings attached, all parties need to do their due diligence to make sure they understand the terms of the loan provided by the lender.

Many banks have special in-house (portfolio) loan programs that they offer their customers in order to make home ownership more feasible and affordable. These special loan programs may include lower or no down payments, lower interest rates, or custom terms that are created for certain industry professionals (e.g. physicians). In-house loans are often used for strong borrowers that have circumstances keeping them from qualifying for a conforming loan.

If you know you’re going to stay in your home for a while, paying points may be exactly what you’re looking for. Paying points is a way for a borrower to obtain a lower interest rate by “buying down” the interest rate on their loan. These costs are typically called discount points, or mortgage points, and they are paid up front at closing. One point equals the cost of 1% of the loan amount. The best part is that the buyer or seller can pay these discount points, meaning you may be able to include part of these fees in your closing costs.