Home Loans

Since most people cannot afford to purchase a home outright, they apply for a home loan, also known as a mortgage, to help finance the purchase. Applying for a home loan can be both nerve wracking and exciting, especially if it is for a first home or a dream home.

Traditional Types of Home Loans

Fixed Rate: Fixed rate loans have an interest rate that never changes as well as a consistent monthly payment. They are stable and allow the borrowers to manage their budget because there are no unexpected rate increases. Fixed rate home loans can be refinanced if interest rates decrease. The term of a fixed rate loan is typically between 15 and 30 years.

Adjustable Rate Mortgage: Known as ARMs these loans have interest rates that go up or down during the term of the loan according to the current interest rates. The interest rate generally begins lower than a fixed rate loan, but as the rate adjusts it usually rises. Adjustable rate mortgages are a good idea for those who do not intend to stay in a home for an extended period of time. They are usually a poor choice for those who stay in a home for a long time, often requiring them to refinance when the rate adjusts high.

FHA Loan: FHA loans are insured by the Federal Housing Authority. They help low-and middle-income borrowers as well as first time borrowers secure a loan.

Conventional Loan: Conventional loans are not insured by the government. They are administered by Fannie Mae and Freddie Mac. They have a limit that a single family can borrow.

Jumbo Loan: If the needed amount exceeds the conventional loan limit, a private investment company can issue a jumbo loan.

VA Loan: VA loans are insured by the Veterans Administration and are available to those with qualified military service. They generally have lower requirements in what it takes to qualify for the loan and a lower down payment than a conventional loan.

Paperwork Required for a Home Loan

The mortgage process requires a lot of paperwork. You can expedite the process by having the necessary paperwork pulled together before applying for a loan. Typically that paperwork includes:

• Current home address and your previous home address


• If a renter, your landlord's address and phone number


• Your W-2's for the past two years


• Pay stubs that show your monthly salary and deductions


• Statements for all your checking, savings, investment and retirement accounts


• Names, account numbers, and balances on all current loans.

Various lending institutions can require additional paperwork before approving an applicant for a loan.

By Robin Shreeves