HOME LOANS

The traditional home loan is a conventional loan--one not secured by a government entity and based solely on the purchased home
and the borrower. This loan is based on the amount the home's worth, the interested rate for the loan, the term of the loan and the down
payment. While there are lending with programs available with different parameters, a traditional conventional loan is based on the
borrower putting down 20 percent of the purchase price. The lending institution will fund the other 80 percent of the purchase price, repaid
over a period of time, usually 30 years, and a cost. The cost of borrowing money is called interest, which is a percentage rate the lending
institution charges for using its money. The rate varies from day to day and from state to state. Check with your local institution for current
rates. This type of conventional loan has been considered the most stable, because the new homeowner has 20 percent equity in the home,
the amount in cash they put down. This allows for lower monthly payments and a financial recourse in the event of an emergency. This
equity can be taken out, in the form of cash to pay off bills, tuition or for other situations. Financial institutions would prefer all home
mortgages to have 20 percent down payments, but it is not always possible for every buyer. For those who require assistance in becoming
a homeowner, the government has options.

FHA Loan

The U.S. Department of Housing and Urban Development (HUD) oversees the Federal Housing Administration (FHA). The FHA provides
security for loans where the borrower does not have the 20 percent down payment. An FHA loan basically states that in the event the
borrower is unable to fulfill the obligation, the FHA will take the financial hit. It means the lending institution will get paid. An FHA loan
requires only a 3.5 percent down payment from the borrower instead of the traditional 20 percent. Single-family home purchases are the
easiest FHA loans to qualify for. Condominium FHA loans are more time consuming and are approved based on the health of the
condominium's management group and the Homeowner's Association or HOA. In a condominium or townhome purchase, there also
cannot be more renters than owners living in the community.

Conforming Loans

Conventional loans are limited the amount that can be financed. A conforming loan is one that adheres to the government's guidelines on
loan limits. Fannie Mae, a government-sponsored enterprise, or GSE, regulates the loan limit, which is currently $417,000. Any amount
more than $417,000 is considered a Jumbo Loan.

Jumbo Loans

A Jumbo Loan is any loan above the government maximum loan amount. These loans will carry a higher interest rate than a conforming
loan, and may not be offered by every lending institution.

Sub-Prime Loans

For prospective buyers who don't qualify for standard loans due to cash or credit score and history, there is the sub-prime market. The
Sub-prime market does not include big banks and has less stringent requirements for approval. If you are considering home ownership
and unable to get big bank approval, check with mortgage brokers for possible alternatives through the sub-prime market.

Loan Terms

Most homeowners choose a 30-year mortgage, but 15- and 20-year mortgages are available. Choose the options that works best with your
financial picture. Loans are also available with a fixed interest rate, an adjustable rate, balloon or graduated payment. With a fixed interest
rate, you will pay the same amount each month until you sell or pay off the loan. An adjustable rate mortgage, or ARM, is where the
interest rate fluctuates. An adjustable rate can be one set rate for three or five years, one year of fluctuation, and the rest of the loan will be
based on the current rate of that year. Many borrowers chose this option, because the first three to five years will have an extremely low
rate, below current market. What borrowers also face is the possibility of rates being extremely high at the end of their adjustable period
and an unmanageable mortgage payment. A balloon loan is where the borrower pays only a percentage of the mortgage for a set time, and
the rest of the mortgage is to be paid at the end in a balloon payment. If the balloon is not paid in full or refinanced, the homeowner can
lose the home. A graduated payment loan, GPM, allows for lower mortgage payments in the beginning and increases over time. Geared
toward young professionals whose lives will change, a GPM allows a borrower to benefit from home ownership and grow as income
potential increases.

Conventional Vs FHA Loans

Traditional loans require a 20% down payment but FHA loans allow a minimum down payment of 3.5%. Another difference is that while
traditional loans depend heavily on the credit score of a borrower for determining the interest rate, lenders of FHA loans are more
concerned about the ability of a borrower to repay his mortgage. FHA loans are suited for first-time home buyers who often does not have
enough resources for the 20% down payment. The guidelines on FHA loans are more lenient than those for conventional mortgages. Read
more about the differences between conventional and FHA loans here.
Conventional Vs VA Loans

VA loans are available to for veterans and members of the military. Borrowers who qualifies for the VA loan program can put down as little
as zero percent down payment. Since the Department of Veterans Affairs guarantees the loan, there is no need for private mortgage
insurance and the qualifying terms for VA loans are not as stringent as those for conventional loans. See the Veteran Affairs web site for
more information on V.A loans.

When choosing a mortgage, a borrower is advised to weigh the advantages and disadvantages of each type of loan and choose what is
best for him. A borrower with a good credit history and enough cash for 20% down payment can get the lowest interest rates with a
conventional loan. Even if the borrower doesn't have the 20% down payment, he can still take a conventional loan with private mortgage
insurance.