Choosing Between Different Types Of Real Estate Loans

Real properties are often priced way beyond the reach of common man

, in spite of the fact that a reasonable place to live is far from being a luxury that you can turn your back on, in case you cannot afford one. Raising the required amount by saving some money on monthly basis can take a lifetime of an ordinary salaried citizen, which means that the dream of purchasing and living in your own home stays a dream throughout your life. Thankfully, different types of mortgage or real estate loans are there to assist people in buying and living in their own homes, while paying the mortgage installments on monthly basis. This option, while not as good as paying the lump sum amount and owning the house right from the word go, is still better than waiting through your entire life.

You can choose from the many types of mortgage or real estate loans, for example fixed rate mortgage, government mortgage, Islamic mortgage, balloon mortgage, flexible mortgage, pension mortgage, prime mortgage, sub prime mortgage, etc. However well discuss only the basic types of real estate loans.

Government Loans

Federal Housing Administration and Department of Veterans Affairs are two government bodies that assist people seeking for finance to purchase home. FHA was established after the National Housing Act of 1934, which was passed with the objectives of making home mortgage more affordable for the common man. VA loan is a secured loan guaranteed by Department of Veterans Affairs, therefore, only the American veterans are eligible to benefit from this loan. Similarly, USDA loan is another type of mortgage insured by USDA and obtainable mainly in rural areas. Note that VA or USDA do not lend themselves, all they do is to provide guarantees to the lenders.

Fixed-rate Mortgage

Fixed rate refers to the fixed interest rate of a loan. The interest rate is fixed in advance; the borrowers pay a fixed amount for a fixed duration (ranging from 15 to 30 years). You may go for fixed-rate loans only when the interest rates are lower at some specific point of time (interest rates are on the higher side nowadays due to the financial crunch); otherwise you should opt for adjustable rates.

Adjustable Rate Mortgage

As the name suggest, adjustable rate mortgage are loans where the interest rate can be changed on periodical basis. This type suits the lenders who can adjust interest rates according to the situation of market. Sometimes a loan can be both fixed (for a certain period) and adjustable (after the set period) at the same time.

by: William

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