Home Owner Loan

By: EconomyWatch Content   Date: 17 December 2009

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If you are looking for a home and have saved money for down payment, it is time to apply for a home owner loan. Before you get a mortgage loan, it is important to consider how much you can afford towards down payment and monthly payments, as well as the stability of your income.

 

Home loans can be categorized into conventional loans and government loans. These can be further categorized into adjustable rate loans, fixed rate loans, etc. Home owner loans are sanctioned by three government agencies:

  • The US Department of Veteran Affairs (VA)
  • The US Department of Housing and Urban Development (HUD)
  • The US Department of Agriculture Rural Housing Service (RHS)

Home Owner Loan: Conventional Home Loan

Conventional home loans are not provided by government agencies. A conventional home loan typically features a fixed interest rate and term of either 15 years or 30 years. When a home loan is issued, the amount of financing cannot exceed 75% of the assessed value of the property.

 

A conventional home loan can also be called a conforming mortgage loan in the US. These loans conform to the guidelines of Fannie Mae and Freddie Mac. These companies are stock-holder owned corporations engaged in buying mortgage loans from loan agencies. They sell the loans to investors after packaging them into securities.

 

Conventional home loans come with a number of advantages to attract first-time home buyers as well as those investing in real estate. Buyers can build more equity with these loans than with other mortgage types, since the requirement for down payment is usually more than 15%. This enables them to save money through lower interest rate. Another advantage for buyers is financial security, in case the housing market plummets.

 

The interest rate on conventional home loans is usually lower than the interest rate offered on other loans. Even a difference of 0.25% can make a huge impact on the total payment over the life of the home loan.

 

In case of conventional home loans, there is no compulsion to take private mortgage insurance (PMI) to secure the loan. The biggest advantage of conventional loans is that any homebuyer who fulfills the lending requirements established by the loan agency can purchase these loans. On the other hand, government-secured loans involve enormous paperwork and stringent guidelines to be implemented.

 


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