CHOOSING A LOAN

CHOOSING A LOAN

                Choosing a loan that meets your individual needs requires you to review your financial objectives and ask certain questions that along with the help of a loan officer will help you make informed decisions.  One of the most important questions to determine is how long you intend to occupy the house.  What is your tax bracket?  How much can you afford for a down payment?  Is paying the mortgage off early important?  Can you or should you make extra principal payments?  Do you want a level payment or a variable payment mortgage?  Should you finance the closing costs in the interest rate or the loan amount?             The two most common loans are fixed-rate mortgage loans and adjustable-rate mortgage loans.  If you plan to stay in your house for a long time, you will probably want a fixed-rate loan so that your interest rate stays the same throughout the entire life of your loan.  Fixed-rate mortgages are available in a variety of repayment terms, with 15, 20 and 30 years the most common.  The interest rate with an adjustable-rate loan (ARM) adjusts periodically as the market rates change.  These loans are attractive to consumers because they usually offer a lower initial interest rate than a fixed-rate loan, and many people qualify for larger loans due to this initially lower rate. On the other hand, the rate can increase substantially and some people cannot handle the instability.

                 There are other loans available besides the conventional fixed-rate mortgage loans and adjustable-rate mortgage loans.  There are three agencies that offer government-insured loans and in each case the properties being purchased must meet certain criteria.

 A Federal Housing Administration (FHA) loan allows you to buy a home with as little as 3% down payment.  Unlike conventional loans, the down payment and closing costs on a FHA loan can be made as a gift from a relative.

          The U.S. Department of Veterans Affairs (VA) loan allows qualified military veterans to buy a house for up to $417,000 with no down payment.

The Rural Housing Services (RHS) offers low interest rate loans with no down payment to people with low to moderate income households who live in rural areas or small towns. 

There are also special programs for first-time homebuyers.  These programs typically offer mortgages with low or no down payments and below market interest rates with specified income guidelines for first-time buyers.

Reprinted from article published in the Sandhills Real Estate Section of the Pilot.