Most of us are unable to buy a home with cash so we explore mortgage options. According to U.S. census, 63% of Americans have a mortgage which is gradually paid off as they live in the home. As you prepare to buy a home, take some time to explore your financing options so you are prepared when visiting your lender. Here's a summary of a variety of loans used to finance the purchase of a home, making it easier for you to get on with homeownership.
These loans come with a lot of options including non-conforming, portfolio, subprime, and conventional. These loans are the most popular type today, are offered by private mortgage lenders, and have loan limits associated with them.
When most people think of government loans, they think of FHA loans. These loans are guaranteed by the Federal Housing Association, have low down payments and are geared toward low- to middle-income families because of their affordability.
Popular during the mortgage boom of the mid 2000's, piggyback loans are rarely used today. This government-back loan is a second mortgage loan made at the same time as the main mortgage. If the borrower can only afford a small down payment (ex. 10%), they could get a piggyback loan to boost the amount to 90% of the price of the mortgage and avoid PMI.
This is another example of a loan that is unusual in the today's mortgage landscape. As the name implies, this is an interest-only loan -- the buyer only pays interest on the mortgage. This loan is typically used when the buyer wants a bigger home than they can afford and they plan on selling it within a few years.
Fixed-Rate and Adjustable Rate Mortgages (ARM)
Options for fixed-rate or ARM mortgages are typically offered through FHA loans programs. Some examples of these loans include 15- or 30-year fixed rate, 5/1 ARM, and interest-only ARM.
This may be the first time you've ever heard of owner financing. With this option, the current homeowner puts up some of the money required to buy the home. This is most useful when lenders refuse to finance the property.
Programs For Specific Occupations/Profiles
Certain occupations can qualify for incredible discounts on home financing including the following: law enforcement officers; EMT's; nurses; firefighters; teachers; veterans; those with low-to-moderate income. In some cases, the qualifying individual can save as much as 50% off of a home's appraised value.
More detailed information about mortgages can be found in our Insider's Guide to Home Financing. Our guide is a great resource worth bookmarking for future reference. Share with your friends too, so they can be prepared to talk to their lender about their mortgage options.