You may obtain loans for up to four properties at a time to stay within the limits of residential property purchase. Commercial loans are for five units and more.

Lenders for house purchase

Banks, credit unions, and insurance companies
Private lending agencies
Federal government agencies

Fannie Mae and Freddie Mac are the largest two federal government agencies supporting home mortgage loans for millions of people in the United States.

Fixed-rate loan versus adjustable-rate mortgage loan

Fixed–rate loans carry higher interest rates but give you peace of mind. You pay the same fixed amount in monthly mortgage payments during the term of loan.

Adjustable-rate mortgage loans (ARMs) carry lower interest rates. They are indexed to prime rate, LIBOR (London Interbank Offer Rate), Treasury Bill rate, or any other well-known rate with a margin. It may be prime plus a percentage point. Accordingly, this percentage may go up or down. In general, the starting interest rate is lower (teaser), going up by no more than annual caps. There is another cap for the term of the loan.

Important considerations in getting adjustable rate mortgage loan

Before committing yourself, make sure that:

Your ARM is indexed to a stable and well-known interest rate.
There is no pre-payment penalty.
Annual and lifetime caps are within industry standards.

Need more funds for your home financing?

There are three ways that you can increase the amount of funds that you can get:

Apply for an Adjustable Rate Mortgage (ARM) if your fixed-rate loan amount is insufficient to cover the selling price and expenses. Due to its lower interest rate at least in the beginning, you can qualify for a higher amount of loan money.
Get Private Mortgage Insurance (PMI). This insurance enables you to lower your down payment to 3 percent, thus increasing the amount that you can use to purchase the fixer-upper or foreclosure home that you want. This insurance gives your lender an assurance that the difference between your actual down payment and 20 percent of the loan is covered.
Ask for a balloon mortgage loan. You pay very low installments in the beginning.

Cancel your Private Mortgage Insurance on time

Ask for cancellation of PMI when your equity in the property reaches 20 percent. You don’t have to wait until your installments make up the 20 percent. Check the market value of your home. If your equity exceeds 20 percent when your property is valued at market prices, look for refinancing. Many people forget this and pay their insurance premiums unnecessarily.

Here is an example: You purchase a home with a 3 percent down payment by obtaining PMI. Your home’s market value increases by 18 percent in one year. Now, your equity is 21 percent. When you apply for the same amount of loan (not for the full value), then, you have more than 20 percent equity in your house. Borrowing 80 percent of the value will suffice to pay off your current loan and replace it with a refinanced loan.

When should you get Adjustable Rate Mortgage loan?

You will be better off with an ARM if you need financing for a relatively short period of time. It is ideal for fixing up expenses. You enjoy the low rate in the first few years and close the account when it will go up according to the loan agreement. There are ARM’s for 3, 5, and even 10 years.

In general, ARMs have 2-percentage point caps for each year and 6-percentage point caps for the life of the loan.

Fixed-rate loans are good if you borrow when market rates are low. Although many loan documents allow you to refinance or prepay without penalty, make sure the agreement includes such provisions

How about getting an assumable loan?

You may assume (take over) some low-interest FHA and VA insured or guaranteed loans extended before the 1990’s. VA and FHA loans extended before 1988 and 1989 do not have a “due on sale” provision. Accordingly, they can be assumed by anyone without satisfying qualification requirements. However, you can assume loans extended after that period only if you qualify.

Even if the loan was obtained after the 1990’s, you may want to check whether it is assumable, and what the interest rate is. Consider assuming the loan if the interest rate is lower than what you can get. You also save time and closing costs when you assume the loan.

Few words on assumable loans

Consider obtaining an assumable loan from financial institutions during periods of historically low interest rates, as in 2002. This works for you when you intend to live in the property for few years, and then, sell it for profit.

Assumable loans make great sense when you sell your property two years later when interest rates are higher. Most conventional loans are not assumable.

Government Insured Loan Programs

Government insured loans are good for people who want to make a low down payment.

Federal Housing Administration (FHA)

FHA does not finance but insures home mortgage loans. FHA loans are great if you cannot make the down payments more than 3 percent. Interest rate is lower. However, you must live in the house (residential property) that you finance through FHA.

203K Loans are used for home improvement. Owner-occupants get 100 percent financing based on the property’s projected (after the work is done) value.

You may need to stay in a property for two years to meet the owner-occupant requirements of the government institution. There are real estate investors who buy properties to live in for two years, and then, buy another property to live in for another two years.

Veterans Administration (VA)

VA loans cover 100 percent of the purchase price.

Remember: Pre-qualification letter from your lender strengthens your negotiation power with the seller. In general, pre-qualification letters are for 30 days while some bank offer 90-day prequalification letters.

Conventional home mortgage loans

Standard home mortgage conventional loans are for 80 percent of the appraised value of the real estate property. Can you buy a home with no down payment? Here are some "no down payment" options.

Ask the seller to finance the balance of 20 percent (seller financing).
Obtain Private Mortgage Insurance (PMI) to cover that portion of the loan.
Get a line of credit (second home mortgage loan) from another lender for the 20 percent portion.

How do they evaluate your credit worthiness?

Lenders want to know your ability to pay back your home mortgage loan. FICO is one of the well-known reports. Here's what affect your FICO rating:

Your payment history relating to credit cards, home and car loans.
Lines of credit on your credit cards, usage of credit, payments later than 30 and 60 days.
Delinquency on any account.
Number and status of retail accounts.

Tip #1: In general, you pay lower interest rate if you live in the real estate property that you buy.

Tip #2: Always ask and check the loan agreement if there is any "prepayment penalty." Prepayment penalty may be limited to only first few years. "No prepayment penalty" is not difficult to negotiate.

Tip #3: Stay away from home mortgage loans with negative amortization feature as your balance does not decrease with each payment. Go for "no-neg" loans!

Now is a great time to buy a home while interest rates are at their historical low levels!

Home Mortgage Loan

Loans for "residential" real estate property