Types of Loans Available

Are you confused yet? As if there isn't enough to learn about buying a home, you also have to learn about banking as well. Well, I'm exaggerating... The truth is, there is a lot to learn and you should be an educated buyer so you at least know what you're getting yourself and your family into.

Here's a snipet of info regarding mortgages to get you started. There are several types of loans - 30 yr., 40 yr. (still very new), ARMs (in 10yr, 7yr, 5 yr, 3yr, and 1yr), interest only, balloon mortgages, and reverse mortgages.

All of these have various costs that differ from lender to lender. Costs include the interest rate you'll be paying for the loan, points and possibly even a loan fee.

30yr fixed mortgages generally have the same interest rate for 30 years. I would imagine that the same is for the 40yr, but you'll have to do your own research for that one.

ARMs are short adjusted rate mortgages which means that the rates change at you guessed it - 10yr, 7yr, 5yr, etc. - you get the idea.

Interest only loans means that you pay interest only up front which seems cheap, but the rates can change quickly so don't be deceived. Because of the problem we had earlier this year with subprime lending in the form of ARMs and interest only, they may have stricter lending requirements. I've heard that they aren't even being offered and yet, I seen so many ads offering these loans. If this is the loan for you, it'll probably be best to ask your lender what's available when the time comes.

Balloon payments have a huge "balloon" payment at the end of the loan term.

Reverse mortgages basically pay you assuming you have considerable amount of equity in a property you already own. Let's just say for now that this doesn't really apply to our situation.

With all that being said, a lender could offer one or more of these loans. Take some time to watch the ads in the real estate section of the Sunday paper. See whose offering what at what interest rate. Don't be shy in calling them to inquire about the loan. Find out what the terms are and how you can qualify for the loan. The terms you're interested in are:

1. What's the interest rate?
2. Are there points or fees attached to the loan?
3. What kind of FICO score would you need to obtain the loan?
4. Is there a prepayment penalty for the loan?

By the way, I forgot to mention that we don't want to have a prepayment penalty on the loan as much as possible. A prepayment penalty means that you will have to pay in order to get out of the loan - kind of like having to pay to get out of your cell phone contract early.

By the way #2, also remember that you're only shopping for your loan at this point. Unless you're ready to buy, don't let them pull your credit just yet.

Be the informed buyer. I know this information may all make your head spin, but it'll be worth it when you get the keys to your new home! This is your year to turn your dreams into realty!

Coreen K. Nishijo (RA)
The Master's Plan Realty, LLC
ckn0316@hawaiiantel.net
Office: (808) 488-2992