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Understanding the Different Types of Mortgage Loans

You cannot turn on the news today without hearing some sort of statistic about the housing market. Home sales have been dropping consistently for several years which have caused a deep slump in property values around the United States. Today, homes are sitting on the market an average of 4.7 years as opposed to the less than 12 months statistic realized back in 2007. For many people the negative media and economic downturn pertaining to home sales, home foreclosures and loan rates – has caused them to remain cautious before buying (or even considering) a new home. Yet, according to financial analysts with MSNBC – right now really is the best time to lend your efforts towards homeownership. Why? Check out these 5 reasons you should consider buying a home:

  • Saving money. Yes, owning a home can cost you less than renting – especially in today’s market where property values and home values are plummeting. In 2011, rental giant Reis estate firm released a statement that forecasted rental costs to increase by as much as 5% in 2011. Bottom line, you could pay less for your own home each and every month than you do to rent someone else’s.
  • Home Values will start to increase. According to the S&P index, the housing market is definitely down. However, experts also suggest that we are at the rock bottom of the housing crisis. If you purchase a home and have plans to stay there for a while – you will definitely see gains in equity over the next 7 years.
  • Mortgage Rates are LOW. In 2011, mortgage rates hit an all time low of 3.78%. Today, they are slightly higher – but are still low compared to mortgage loan rates several years ago.
  • Housing prices are appealing to BUYERS. That house that has been sitting on the market for 6 years will definitely come down in price. Many sellers are looking to get out of homes as fast as possible, which means that houses are selling for a lot less. Plus, the market is flooded with foreclosures where quick sales can give new homeowners great deals on homes.
  • Loan Availability. Financial experts estimate that now is the best time to qualify and receive a loan. With the government push to increase home sales, loan availability is easier, even for those with less than perfect credit. And in order to increase the profitability of the housing market, loan options are becoming mass and customizable to meet the buyer’s needs. In other words, financial institutions and sellers are motivated to close deals.

VA Mortgage loans, FHA Loans, RHS Loans….What’s the Best Type of Loan?

Okay, so now you know WHY you should consider buying a home. The next step is understanding how. Figuring out loan types and getting the best deal is a difficult endeavor at best. Just like there are hundreds of corporations that aim to help new homeowners secure a loan, there are many scam artists looking to take advantage of perspective new homeowners. Do your research on reputable websites, and talk to a real estate agent that you can trust for help with this decision. You should also talk to your financial center for pre-approval and rates prior to shopping for a new home. The following gives you an overview of the different types of loan jargon (and their definitions) that are commonly used. This list is not all- inclusive, but gives you a good idea of some of the more common types of loan options available for buyers today.

  • VA Mortgage Loans: These loans are essentially guaranteed by the US Department of Veterans Affairs, which means that they are available to veterans and service men and women and most often offers loan security without a down payment. Eligibility and price caps are determined by the VA, and your loan is backed by the government. VA Mortgage Loans are definitely something all veterans and service people should consider first and foremost when considering buying a home.
  • RHS Loan Programs: The RHA (Rural Housing Service) is backed by the Department of Agriculture and guarantees loans in very rural (agricultural) areas.
  • State & Local Housing Programs: If income is an issue, many states across the United States offer low to moderate housing finance programs available for the first time buyer. This loans appeal to those who do not have stellar credit and offers new homebuyers a tax credit at the end of the year. The good news is that the interest rates are generally lower.
  • Fixed Rate Mortgage Loans: These are the most commonly used types of loans, which essentially keep your mortgage payments at one level throughout the duration of your loan. Normally, you can acquire 30 or 15 year fixed rate mortgages, Bi-weekly mortgages and convertible mortgages.
  • Lender Buydowns: Lender buydowns offer a discounted interest rate initially to get the homeowner in the new home and acclimated, but the interest rate increases over the years. One advantage to this type of loan is that generally speaking after the first 3 years – the interest rate becomes fixed.
  • Adjustable Rate Mortgages: These loans can be tricky, and can be risky in a volatile financial market. Essentially, it makes home ownership easier in the beginning, and allows interest rates to fluctuate in the future according to market standards.

Purchasing a home truly is the first step in the right direction towards financial security. Owning your home is a smart investment of your time and money. When you consider that your rent payments are systematically buying a home for someone else, it doesn’t make much sense to continue renting. Especially with so many options for homeownership. As long as you are an informed buyer, and do your homework – the American Dream of homeownership can truly become a reality for you.

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