| Loan Type |
Features |
Interest Rate |
Down Payment |
Payments |
| Veterans Administration (VA) |
Loans are assumable and can be combined with second mortgages. |
Rates are fixed and are typically below conventional levels. |
Not required |
Determined by lender |
| Federal Housing Administration (FHA) |
The FHA offers 15 or 30 year fixed-mortgage rates. |
Fixed |
3 percent down payments on first $25,000 of the loan value and 5 percent on the rest. |
Fixed |
| FHA's shared equality (SEM) |
Allows marginal buyers to pair up with a relative or other investor. Each investor owns a percentage of the home's value. Loans are offered for up to 97 percent of the home's value. |
Determined by lender |
Determined by lender |
Monthly payments are based on the percent of ownership. |
| Seller financing |
Often allows marginal buyers the ability to purchase when lenders might consider them poor risks. The buyer saves money because there are no discount points, and often there are no closing costs or they're less expensive than with lender financing. The sale is treated as an installment sale for the seller's tax purposes; he's taxed only on the amount of money he receives each year. |
Determined by seller |
Determined by seller |
Determined by seller |
| Buy-downs |
The seller pays the lender to temporarily or permanently lower the borrower's interest rate. |
With permanent buy-downs, the interest rate is typically lowered by 1 percent during the entire life of the loan. The most common temporary buy-down is the 3-2-1 plan, whereby the interest rate is reduced by 3 percent the first year, 2 percent the second year, and 1 percent the third year. Payments then remain stable during the remainder of the loan term. |
Determined by lender |
Determined by type of buy-down |
| Wraparound |
The seller makes a money advance to cover or "wrap" the buyer's balance on his current home and the new loan. |
The interest rate on the new loan is below market rates. |
Determined by terms of the loan. |
Allows the owner to have a lower monthly payment than if he had taken a new first mortgage at a higher interest rate. |
| 30-year fixed rate |
Provides stable monthly payments for fixed term. |
Fixed |
The loan may be obtained with as little as 5 percent down payment with FHA insurance, but private mortgage insurance (PMI) is required on loans with down payments of less than 20 percent. |
Fixed |
| 10-, 15-, 20-year fixed rate |
Provides more rapid equity buildup than with linger-term fixed-rate mortgage; provides substantial interest savings over 30-year fixed-rate mortgage. |
Fixed |
Determined by lender |
Higher monthly payments than with 30-year fixed-rate mortgages because of shorter loan terms. |
| Biweekly fixed rate |
Equity builds faster because of increased number of payments annually. |
Fixed |
Determined by lender |
Borrower makes the equivalent of 13 monthly payments in 12-month period. Payments are fixed at one-half those of monthly fixed-rate mortgages and ar drafted automatically from the borrower's bank account. |
| Adjustable rate (ARM) |
Six-month and one- and three-year ARMs are available, which means that the interest rate will be adjusted after six months or one or three years. Some three year ARMs feature caps on the level to which the loan may be adjusted during the loan term, 15- and 30-year options, and options to convert to fixed-rate mortgages. |
Lenders peg the loan's interest rate to an index, and payments are adjusted according to the movement of the index. |
Determined by lender |
Some lenders allow borrowers to add closing point costs to mortgage payments during the loan's first two years. |
| Negative amortization |
Borrower's monthly payments fall short of covering the loan's principal and interest. The loan amount not covered by monthly payments is added to the life of the loan. |
Fixed |
Determined by lender |
Allows the buyer to have lower monthly payments |
| Graduated payment (GPM) |
Allows the buyer whose income is likely to increase in the future to buy with lower initial monthly payments. |
Determined by lender |
A larger down payment is often required. |
Payments increase gradually after the first five of ten years of the loan and then level off for the rest of the term. |
| Growing equity (GEM) |
"Overpayments" are applied to the loan's principal, creating substantial interest savings over the life of the loan. Typically, a 30-year mortgage is paid off within 15 to 20 years. |
Fixed |
Determined by lender |
The mortgage is calulated at a fixed rate on a 30-year basis, but payments increase on a regular schedule. |
