Home Financing Options
Are you thinking of buying a home, and are not sure of the various home financing options
available? Here we give you details about some home financing options which you may avail of.
Today more and more people are thinking of buying a home and improving their lifestyles.
Moreover, an increasing section of homeowners feel that the best way to improve their asset is to
either invest in refurnishing their existing homes or buy a new property. Additionally, if you are
still in the process of paying off your first home loan, you can still think of investing in a
property as there are home refinancing options available. With the kind of rates prevalent in the
real estate market, it's the best time to invest in a new home as property rates are bound to
increase in the next few years.
You need to know, how to search for easy home financing options as there are several financial
institutions and banks, competing with each other offering customers with special offers coupled
with low interest rates. However, these offers may be quite confusing for first time home buyers.
So you need to ensure that you have got the best deal while buying your home. You can use the
internet to find the options available for financing the purchase of your new home. But it may
confuse you with loads of information available. The best way of searching a deal which suites
your needs is to call up a few lenders and find out the offers available. Moreover, you can also
ask for a quote from a few banks and compare the rates and options available to you.
If you think that you would have to pay a huge amount in down payment, you are mistaken.
Today, there are options available wherein, you don't have to pay much in towards down
payment and the best part is that closing cost is absorbed by the banks. Once you have applied
for home loan, your credit score would be checked, but even if, you don't have an excellent credit
score, you don't need to worry. There are banks which offer you home financing options even in
case of bad credit ratings.
Financing Options for your Home
Home financing options are available from several banks, credit unions, loan associations and
mortgage companies. Each institution has its own rates, fees and rules. While comparing lenders,
make sure that you go through the offers made as it may help you save a lot of money. The sheer
number of home financing options may be overwhelming, however, most of options fit into one
of these major sections.
Conventional Home Finance
Conventional home financing options include fixed rate mortgage, adjustable-rate mortgage and
jumbo loans. Let us take a look at all these options in detail.
Fixed Rate Mortgage
In fixed rate home financing options, the interest rate remains constant with equal monthly
payments and you have to repay the loan within a fixed duration of time. Usually, the repayment
period is for 30 years. The advantage of a fixed rate mortgage loan is that they are predictable
and are suited for people with a fixed monthly income.
Adjustable Rate Mortgages
As suggested by its name, the rate of interest on adjustable rate mortgages keeps on changing
throughout the term of the loan. These home mortgages are sought after when the difference
between the fixed-rate mortgage and adjustable rate mortgage is more than 2 percent.
When the mortgage amount applied for by a borrower, exceeds a certain amount it's called jumbo
mortgage and this limit is set by the Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association. Currently, the limit is US $300,700. Due to the higher loan
amount and the risks associated, the rates of interest are higher.
In balloon mortgages the interest rates are fixed. Even though they are long term loans, the loan
must be paid off along with a balloon payment. Usually, the duration of such loans is from five
to seven years. The main advantage of such a loan is that the rates of interest are usually below
the current market rates.
Federal Government Home Finance Programs
Federal government home financing options include Federal Housing Administration insured
loans, Veterans Administration guaranteed loans and Farmers Home Administration loans.
Federal Housing Administration insured loans
Federal Housing Administration insured loans is another home finance option available wherein
the Federal Housing Administration insures the loan. If you apply for such a loan the down
payment you have to pay is lower and you don't need to pay much towards closing costs. The
down payment may be as low as 3.5% of the price at which you purchase your home. More on
no closing cost home loans.
Veterans Administration guaranteed loans
This type of loan is available for veterans and is guaranteed by The U.S. Department of Veterans
Affairs. In case of foreclosure, the administration acts as a guarantee for the lenders. These loans
can be used to repair, construct, refinance or buy a house.
Farmers Home Administration loans
These loans are available only for those who live in rural areas with low income. These loans are
guaranteed by the Farmers Home Loan Administration and rate of interest are low compared to
other mortgage options available.
Other than the two financing options mentioned above, another home financing option which
you can avail of is the alternative financing option. Under this option you can avail of a lease or
purchase agreements, installment contract or equity financing. You may like to know more on
home equity loans.
Under this scheme, the borrowers can pay a deposit to the seller and this payment is applied
towards purchasing the house. Once a lump sum amount is paid, the borrower pays a fixed
amount each month. This agreement is helpful for buyers who are not in a state to buy a
Under such a mortgage option buyers and sellers reach a contract wherein the amount of down
payment, term and interest rates are mentioned. These contracts may be long term, or short-term
and may have balloon payment.
Under the equity financing plan, a new property can be bought by borrowing against a part of the
equity in their current home. Under this scheme a six-month period is secured in which no
monthly payments are required and the money thus saved is used to purchase a new home. When
the current home is bought by someone else, the previous loan is paid off. In case the home does
not get sold within this period, the loan may be renewed or he or she may choose alternative
By Madhurjya Bhattacharyya Published: 4/1/2010