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Whether you are a first time buyer or experienced real estate investor, finding the right loan is important. To help out with the process, here is a basic guide to standard loans available.

30 Year Fixed Rate Mortgage

A 30 year fixed mortgage gives the buyer the option to pay a fixed monthly payment towards a loan over 30 years. It is the most common type of loan option and sometimes the most preferred for first time homebuyers due to its advantages. The most attractive characteristic is its manageability. This type of loan allows you to pay a fixed and low monthly payment. The downside, though, is that you will end up having to pay more than you would a shorter loan due to higher interest rates over an elongated period of time. The upside to the downside?…the higher payments give you more to deduct on your taxes!

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage is a home loan where the interest rate is adjusted based off of market conditions. Today, interest rates are currently the lowest they have ever been, making this type of loan a great financial opportunity for those whom are more experienced.  The loan offers a low initial payment, and at the time, a very low interest rate to have to include. The risks of this loan occur when there is negative amortization, meaning that the mortgage payment doesn’t cover the fluctuating interest.

FHA Loans

The FHA loan is the easiest type of mortgage loan to qualify for because of its accessibility. Under certain conditions, it is even available to buyers who have undergone foreclosures, bankruptcy, or have poor credit. In addition, the loan requires a mere 3.5% down payment minimum. In comparison to other loans that require up to 20%, this would be very helpful for those on a budget! Of course, meeting the conditions that are required is the first step in figuring out if this loan is the right choice for you. Some things looked at are U.S residency, employment history, and years out of bankruptcy or foreclosure.

Home Equity Line of Credit

Commonly referred to as a ‘HELOC loan’ or ‘second mortgage’, the home equity line of credit allows an already homeowner to access your homes equity via a line of credit. Especially for major expenses like buying a car or college tuition, this loan option is hassle-friendly. However, the downside shows itself in two ways: The first being that the lender can only issue out a certain amount.  For most lenders, this amount is based on the difference between what you currently owe and your home value. Simply put, for those that have more to owe, there is less left to access. Secondly, the interest rate on a HELOC loan is much higher than the one on your first mortgage. However, for those needing financial flexibility, this loan is a great option and one to be considered.

Home Equity Loans

Similar to the Home Equity Line of Credit, a Home Equity loan is based on the difference between what you owe on your home and what your home is currently worth. This type of loan is a great option if you are looking to expense a large purchase like tuition, home improvements, buying a car, etc. It’s a good option for one-time expenses that can be payed back on a fixed monthly payment plan.

When it comes to real estate and loans, its important to not just understand each one, but to also make sure you choose the best option for your needs. If you need any questions answered, give us a call or stop by one of our Doma Real Estate offices in Downtown Long Beach or Belmont Shore…we would be happy to help with your real estate needs!

Resources:

(http://www.homeloans.org/guide/home-loan-types/)

(http://en.wikipedia.org/wiki/Home_equity_loan)

(http://en.wikipedia.org/wiki/Fixed-rate_mortgage)

(http://en.wikipedia.org/wiki/Adjustable-rate_mortgage)

(http://en.wikipedia.org/wiki/FHA_insured_loan)

(http://en.wikipedia.org/wiki/Home_equity_line_of_credit)

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