VA Loan Homes

10 June 2008

Choosing the Right VA Loan for You

Posted by VA Loan Pro under: General; VA loans .

There are a lot of loan choices for people today.  One major problem is that people who are interested in purchasing a home often jump into a loan without knowing what type of loan it is or how the terms of the loan will affect them in the long run.  Many people are blinded by the dream of buying their dream home and will take any deal that is put on the table as long as it allows them to get the home they want.

Don’t be one of those people.  The U.S. is currently in a foreclosure crisis because of poor and predatory lending practices.  Many people are losing their homes because they were taken advantage of by lenders who allowed these people to get mortgages with terms that they knew they could not afford in the future.  Luckily for veterans, the VA offers housing counseling to avoid such problems.

To avoid this, or if you fell victim to these predatory practices in the past, you need to become educated on the different types of mortgages available and what they mean. This is not a substitute for housing counseling, which the VA requires for people who want to use the VA Home Loan Guarantee Program to purchase a home. The following is just a list of mortgage types that the VA allows and information for potential homebuyers and people wishing to refinance to become educated so that you know which mortgage is the best for your needs.

•           Adjustable rate mortgages.  These are sometimes useful, but were responsible for a lot of foreclosures recently.  ARM loans offer an introductory low fixed interest rate that is usually around three years.  Then after the three years is over the interest rate can increase a lot.  It can cause the mortgage payment to double.  This type of loan is only good for people who know they are only going to own their home for a short period of time and then sell, or for people who can definitely refinance before their adjustable rate kicks in and their monthly mortgage payment begins to increase.  Many people lost their homes due to the low introductory rate being very affordable to their budget, and then when their payments began to increase they could no longer afford their home.

•           Fixed rate mortgages.  Fixed rate mortgage account for the majority of home loans and are the safest and most reliable mortgage loans.  With a fixed rate loan your monthly mortgage payment never changes.  If your homeowner’s insurance and property taxes are included in your payment then the payment can only increase if these premiums or taxes increase, but the amount that goes towards your home itself will never change.  These loans allow people to see what they can really afford and understand that once they budget their mortgage payment into their monthly finances it will never change and this makes it easier to keep a home and avoid foreclosure.  This loan is definitely a good choice for people who are planning to purchase a home to live in for a long time.

•           Balloon mortgages.  These mortgages are becoming rare and are not good for the average homeowner.  This is when you make monthly payments for a set amount of time, like 8 years, and then at the end of that time the entire amount of the mortgage loan comes due in one large lump sum.  This is only good if you plan to sell the home before the date the balloon is due, or plan to refinance.  Otherwise, do not consider a balloon mortgage.  Also remember that things do not always go as planned, and even if you plan to sell the home, it may not sell and you should have a plan B just in case.

•           Hybrid mortgages.  A hybrid mortgage is the same as an adjustable mortgage, but has a longer fixed rate term.  Again, these loans are not good for people who plan to live in their homes for a long period of time.

•           Reverse mortgages.  For some senior citizens, reverse mortgages can be a lifesaver.  These mortgages are for people over the age of 62 who owe little to nothing on their home mortgage.  They can get a mortgage loan where they get a lump sum of cash, a monthly income, or a combination to spend on whatever they want.  They never have to make a payment and they can continue living in their home.  In return, the mortgage lender will add up all of the interest and the principal of the loan over the time you have the loan and once you die, they will take that amount out of the sale price of the home.  If you are considering a reverse mortgage, make sure you talk with your family first and consider all of your options before you make a decision.

•           Interest only mortgages.  These mortgages were also responsible for many foreclosures recently.  Interest only mortgages, like ARMs, give a teaser introductory interest rate for a set amount of time and then the interest rate rises and the monthly payments become unaffordable.  The difference is that while the homeowner is making payments during the introductory rate they are only paying the interest and not any principal on the amount of money they actually borrowed to purchase the home.  This means that when their teaser rate is over, they not only have to pay the increasing interest rate, but also the additional payment amount for the principal.  This type of mortgage payment can increase to three times the original payment amount.  This type of loan has forced a lot of families into foreclosure because they did not understand the terms of the loan they were getting.

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