The Loan Process

There are many different types of loans available when purchasing a home. Here is a brief description of these loans.

Fixed or Adjustable-Rate Home Loans

The different types of mortgages available today can be placed in one of two categories. They either have a fixed rate of interest, or an interest rate that adjusts over time. Technically, there's a third category of "hybrid" loans. But I'll get to that later. As a home buyer, this is one of the first decisions you'll have to make about the loan you want to use.

So how do you choose between these mortgage types? First, you need to understand how they work. Next, you need to consider the pros and cons of each type. And lastly, you should choose the loan that best supports your long-term housing plans.

Let's start with the basics...

You can probably see the benefit of using a fixed-rate loan. Your payments will never go up, no matter how long you stay in the house. But what about the ARM loan? Why would anyone choose a type of loan that has so much unpredictability? The answer lies within the initial savings.

During its initial fixed-rate period, the hybrid ARM generally has a lower interest rate than a traditional 30-year fixed-rate mortgage. So you could pay less money in interest during that time, if you went with the adjustable loan.

Conventional or Government Loan

A conventional mortgage is one that is not insured by the government in any way. This home loan is made in the private sector with no form of government backing.

A government-backed loan is insured by some type of federal agency, such as the Department of Veteran Affairs (VA) of the Department of Housing and Urban Development (HUD). The loan may still be made in the private sector, but the lender receives insurance from the federal government.

There are several types of government mortgages: