Types of Financing Options

Fixed Rate Mortgage

The interest rate stays the same throughout the term of the loan -
usually 15 or 30 years - so the principal interest portion of your
payment remains the same. Payments are stable but initial rates
tend to be higher than adjustable rate loans and often cannot be
assumed by a subsequent buyer.

Balloon Mortgage

This is a loan which must be paid off after a certain period. The
advantage they offer is an interest rate that is lower than a
mortgage that is made for 30 years.

Adjustable-Rate Mortgage (ARM)

The interest rate is linked to a financial index, such as a Treasury
security or a cost of funds - so your monthly payments can vary
up or down over the life of the loan - usually 25 to 30 years
Interest rates can change monthly, annually, or every 3 or 5 years.
Some ARMs have a cap on the interest rate increase, to protect
the borrower. Other terms relating to adjustable-rate mortgages:

• Adjustment period: The length of time between interest
  rate changes. Example: one year ARM-interest changes
  annually.
• Cap: The limit on how much an interest rate or monthly
  payment can change at each adjustment or over the life
  of the loan.
• Conversion clause: A provision in some loans that enables
  you to change an ARM to a fixed rate loan, usually after
  the first adjustment period. This may require additional fees.
• Index: A measure of interest rate changes used to determine
  changes in the loan's interest rate over the term of the loan.
• Margin: The number of percentage points a lender adds to
  the index rate to calculate the ARM's interest rate at each
  adjustment.

VA Loan

The VA does not lend money, it guarantees a portion of the loan
so that lenders who originate the loan feel comfortable with their
risk. Qualified veterans can obtain loans up to $203,000 with no
down payment. VA-guaranteed loans can be combined with
second mortgages and are assumable upon qualifying by any
future buyer.

FHA Loan

FHA does not lend money or make a loan; rather, it insures loans.
The down payment can be as low as 2.25%. Discount points may
be paid by either buyer or seller. FHA charges a 2.25% up front
Mortgage Insurance Premium (or as little as 2% for a first time
home buyer) that can be financed in the mortgage amount or paid
in cash (no premium is required for condominiums). The borrower
must also pay an annual Mortgage Insurance Premium or .5%
which is collected monthly.

Seller Assisted Second Mortgage

The seller of the house lends the buyer enough to make up the
difference between the purchase price and the down payment
plus first-mortgage balance (a commercial lender may also
make this kind of loan). The terms including the interest rate,
are based on buyer/seller agreement. It is often a short-term
(5 to 15 year) loan; sometimes "interest only" payments until
the term date when the balance is due in full. A buyer can then
refinance the home.

Assumable Mortgage

Buyer "takes over" or assumes the mortgage obligation of the
seller (with concurrence of the lender). The interest rate doesn't
change and is sometimes lower than current rates. Often the
loan fees are less as well.