How to find the right home loan program

Finding the right home loan program

By Mark Barnes

Direct Lending Solutions Staff Writer

Once you' ve found yourself the absolute best mortgage professional, you've decided on a home to purchase, or you've decided to refinance the home you already own, it's time to discuss the right loan program. Here are just a few of the popular home loan programs available. There are some important considerations, before deciding on which home loan program you want.

First, understand that the old-fashioned 30-year, fixed-rate loan is no longer the most popular flavor offered, even though it's the program whose rate is quoted most often by lenders and mortgage brokers. The average American gets a fixed-rate loan at 30 years, because he or she assumes it's the best and easiest loan to get. Moreover, most people don't even realize that other home loan programs are available and, in many cases, have more to offer the borrower.

The fixed-interest-rate mortgage offers stability, which the conservative society in which we live desires above most other things. When dealing with money, though, stable is not always best. To fully understand this, consider the following example.

Assume you purchase a home and borrow $150,000 to buy it, and you get a 30-year fixed-rate home loan at 5.4%. Not including taxes and insurance, which vary depending on the area, your payment will be $842 per month. The comfort in this home loan comes with knowing that this payment will not change. Now, consider the same house with the same $150,000 loan but with an adjustable rate mortgage. Assume the interest rate is 4.9%. This loan program creates a monthly principal and interest payment of $796 -- a savings of $46 per month and $552 each year over the fixed-rate mortgage. This may not seem like a huge difference, but why pay more, if it's not necessary.

Plus, oftentimes, the difference in the fixed-rate mortgage and the ARM is significantly greater. Over a five-year period, you would save close to $3,000 by taking the adjustable rate mortgage. So, why don't more people get adjustable rates or ARMs? Again, the average American doesn't understand the loan well enough, so he or she is afraid the monthly payment will change every month. This is not true.

Adjustable rate mortgage programs offer different adjustment periods, making them great home loans, depending on what the borrower needs. So, a 5-year ARM's interest rate will only change after five years and, in many cases, it actually gets better. If a person is refinancing the mortgage on a home he or she intends to leave in three years or less, a 3-year ARM would be the best program. This has an even better interest rate than the 5-year. There are even 1-year and 6-month ARMs. Consult with your mortgagr broker, before deciding on an ARM, but these are very good home loan programs that can save a borrower literally tens of thousands of dollars over a fixed-rate loan, in just a few short years.

If you are looking to purchase a home but do not have a lot of money for a down payment or have poor credit, ask your mortgage professional about the FHA home loan. The best parts of FHA loans are that they are not driven by credit score for approval, and the loan can be acquired with very little or even no money as a down payment. Not all lenders and mortgage brokers offer FHA programming, as the government requires a lengthy application process, in order for lending professionals to be FHA representatives. So, if you think you might need an FHA loan, this is something you might want to inquire about, prior to deciding on your mortgage broker.

Almost anyone can get a home loan, if there is sufficient income and not too much debt. Although poor credit can hinder approval with some lenders, it may be no problem at all with others. If you fill out a loan application and are denied, ask your mortgage professional to look into different loan programs, that are designed for poor credit or non-conforming borrowers. An innovative loan officer can get virtually any borrower a loan. It’s all about understanding rates and programs. Happy hunting.

Related Pages in Our Site: Apply for a New Home | Refinancing or Home Equity | Finding the right brokerage

Useful External Resources:

http://www.hud.gov/buying/index.cfm