Don’t assume
that because you can speak the lingo of mortgage fluently
you can also speak to jingoistic lenders with equal
fluency. Here, we explain basic loan lingo related to
home loans that cut across all income brackets. Read
through the various mortgage loan options and see what
they are all about.
Government or conventional loans: The United States
is a large player in the residential mortgage market.
About 20 percent of home loans are either guaranteed
or insured by an agency of the federal government. These
mortgages are also called government loans. The remaining
80 percent of residential mortgages are referred to
as conventional loans. These loans are mortgage loans
usually provided by lenders who are not government-sponsored
such as the FHA, VA or RHS.
• Federal Housing Administration (FHA): Set up
in 1934 during the Great Depression to encourage the
U.S. housing industry, this body encourages people of
low-to-moderate income to get mortgages by giving federal
insurance against losses to those lenders who make FHA
loans. The FHA, however is not a money lender. In fact,
borrowers must look for an FHA-approved lender such
as a bank or financial institution that will give them
a mortgage which the FHA will then insure.
• Department of Veterans Affairs (VA): This provision
enables people on active duty and veterans to buy homes.
The VA does not have money of its own but acts as a
lender that guarantees mortgages and loans granted by
lending institutions. In fact, VA loans are usually
sponsored by the U.S. Department of Veteran Affairs.
They offer competitive interest rates, little or no
down payments and very little declaration of income.
• Farmers Home Administration (FHA): Like the
above two bodies, this one too is not a direct lender.
Contrary to its name, one doesn’t have to be a
farmer to obtain a loan from this institution. But you
do need to buy a home in the countryside for which the
FHA insures mortgages. These loans come with minimal
down payment and are easier to obtain than others. These
loans are FHA loans are overseen by the Federal Housing
Administration.
These loans come from lenders with attractive features
such as minimal cash down payments, long loan terms,
penalty-free if you repay before time, and lower interest
rates. But these loans are targeted towards specific
kinds of home buyers, have comparatively low maximum
mortgage amounts, but take very long to obtain approval.
Apart from these three basic loan types, you
can also choose from:
• Fixed rate loans: Easy to qualify for, lenders
to this mortgage offer you this loan which comes in
20 and 30 year schemes and gives you a good chance to
keep your mortgage payments easy on the pocket over
a long duration. If you plan to live in your home for
several years and keep your expenses at a minimum, this
loan is for you.
• Adjustable rate loans (ARMs): Though this loan
scheme has a low adjustable rate, it is not unusual
for lenders to give you a maximum period of 10 years
for repayment. The rule is that the low start rate means
a short time before you start paying the first mortgage
installment.
• Combination (hybrid) loans: These loans combine
a fixed rate with ARM loans. They have a built-in delayed
adjustment period of which the initial period is fixed.
They carry very little risk—usually lesser than
one year and come with an interest rate that’s
lesser than fixed-rate loans. Though they begin as fixed
rates loans, they adjust to ARM after a few years. This
is meant for people on the move as lenders of a combination
loan allow buyers to make use of low interest rates
for repayment in the initial years of the mortgage scheme.
• Balloon mortgages and pledge asset loans:
Here, your monthly mortgage installments are based on
a fixed term up to 30 or 15 years amortization. At the
end of this balloon period, your lender will tell you
that the remaining mortgage loan amount is due for payment.
Pledged asset mortgages are loans meant for those with
sufficient income to pledge their investments as collateral
in place of a cash down payment.
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