by The Literature and Media Alternative

Created on: August 17, 2007

What kind of mortgages are there to choose from when you are purchasing or refinancing a home? There are many types of plans to pursue, though depending on your credit, you may only qualify for some programs. Consider the different kinds of mortgage loans that financial institutions offer.

Government Loans

Government loans are conventional loans offered by the FHA, the Federal Housing Administration which is part of the U.S. Department of Housing and Urban Development (HUD). There are FHA loans usually ask for lower down payments and are much easier to qualify for than conventional loans offered by a traditional institution. However, FHA loans have limitations on retail price. VA loans (Veteran Affairs) are guaranteed by the U.S. Dept. of Veterans Affairs (GI Bill) and allows veterans and service men to qualify for home loans with very favorable terms. Very often the down payment is 0 and the qualifying process is much easier. Lenders also limit the retail price in VA loans to slightly above $200,000. The U.S. Department of Housing and Urban Development doesn't actually pay loans in this instance, rather, they guarantee veterans loans through associating lending companies. The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture also guarantees loans for some rural residents and offer these consumers low closing costs and practically no down payment. There are also government agencies you can pursue on a local scale, that offer moderate housing finance, down payment assistance and programs specially made for first time buyers.

Fixed Rate And Adjustable Rate Mortgages

Fixed rate mortgages (FRM) are plans that offer fixed interest rates that last for the entire period of the loan, provided the buyer obligations are met. Fixed rate plans are available for 15-40 years and usually, the shorter the term, the lower your interest rate will be. The most widely used terms for fixed rate plans are 15 years and 30 years. Signing for a longer term plan will cost less every month, but you will actually be paying more interest in the long run. An "early amortization" period sees a large percentage of the monthly payments go towards paying off the interest. As the loan is paid, more money is put towards the principal of the balance. There are also bi-weekly mortgage plans that allow buyers to pay half of the monthly mortgage payment every 2 weeks, allowing for a quicker pay off.

Adjustable rate mortgages (ARM) offers a fixed initial interest rate and a fixed initial monthly

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