Realty Complete Getting A Loan |
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Types of Loans There are numerous types of real
estate loans. Some of the more common
types are listed below. There are
many more. If you are in an unusual financial
situation and are uncertain if you are in a position to buy a home, you may
want to shop around for a lender that has a loan program available to help
you. Many real estate agents will
also be aware of loan programs that can help buyers in different situations,
and may know which lender is best suited to your needs. Because many types of loans are similar, a
borrower should consult with a loan officer to fully understand the
advantages and disadvantages of each loan.
To view the three main categories of loans, click
here. Amortized
Loan A loan where the payment addresses the interest owed, plus
something towards the principal (the money you borrowed). If the loan is Fully Amortized, the borrower
will pay enough towards the principal with every payment, so that the loan
will be fully paid off by the end of the loan term. Balloon
Loan A loan that is only partially amortized, meaning the
borrower is paying something towards the principal, but not enough to pay off
the loan by the end of the loan term.
This will allow the borrower to make lower payments throughout the
life of the loan, but will require one large payment at the end. The homebuyer should be prepared to either
make the large payment, or refinance with a normal amortized loan at some
point before the end of the original loan term, either when their financial
situation or interest rates have improved. Buydown A loan in which the buyer pays additional money up front (or
the seller pays on behalf of the buyer), which buys down the interest rate in
the beginning part of a loan. The
most common is a 2/1 Buydown. This
would lower the interest rate 2% for the first year, 1% the second year, and
then the buyer would pay the normal interest rate for the remainder of the
loan term. This can be a possible
option for someone who knows that their income will be increasing over the
next few years. Other options would
include an adjustable-rate mortgage (ARM) or a graduated-payment mortgage
(GPM). Click here to view
categories of loans |