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Money Tip

9/05/08

Mortgage Loans Demystified 

You’ve probably heard rumblings about a tightening mortgage market and rising interest rates.  True, following the subprime lending crisis and some general financial instability, getting a mortgage loan may be more difficult than it was just months ago.  Fortunately, however, interest rates are still at historical lows and there are many types of loans available for prospective homeowners.

Though loans are offered under literally hundreds of different names, there are really only four main loan types: Conventional, Federal Housing Authority (FHA), Veteran’s Administration (VA), and Rural Development.  You’ll find some differences among each type of these loans, one of them including who guarantees them.  Private investors back Conventional loans, while FHA loans are insured by the Department of Housing and Urban Development (HUD).  The Department of Veteran Affairs guarantees VA loans, and Rural Development (a division of the US Department of Agriculture) is a direct lender that guarantees its own loans. 

Anyone can use a Conventional Loan, while FHA loans have lending limits that will vary between counties and states.  Lending limits will also apply to Rural Development loans, as will location restrictions.  VA Loans are reserved for veterans, active-duty military personnel, and National Guard members who meet service requirements.  

All other loans are in some way based on one of the four basic loan types I’ve just mentioned.   But you may encounter any number of specialized loan programs that come with a variety of names and requirements.  Though the specifics of each specialty loan program will vary, they are generally designed to help make homeownership possible for more people.   An example of a specialized loan program is one designed to assist first-time homebuyers.

Through a program offered by a state housing agency, bank, or a nonprofit housing organization, you may qualify for assistance with down payment and closing costs.  You might also qualify for a lower interest rate and have a lower down payment requirement.  Still, for all the benefits a special loan program can bring, there will be some disadvantages to using one.  Your loan will usually have specific provisions that you must meet, including restrictions on maximum household income and purchase price and location limitations. 

Your local lender, real estate professional, or non-profit housing agency should be able to tell you about specialized assistance programs available in your community.  One such program, known as Good Neighbors Next Door, allows law enforcement officers, teachers, firefighters, and emergency medical technicians to purchase homes in predetermined revitalization areas at a discount of 50% off the list price if they are willing to commit to live in the home for 36 months as their sole residence.

The Good Neighbors Next Door Program is but one possibility among many that can help make the dream of homeownership a reality.  Don’t assume that homeownership is out of your reach. 

American Center Credit Education—ACCE
Carey Denman
acce@acce--online.com
605-348-3104

The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.

 

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