Home » eLearning Center » Loans - Get Educated »

Did you know the GFM Debt Management Program could save you hundreds of dollars in interest each month?

Also In This Section:

Payday Loans

Signature Loans

Student Loans

Auto Loans

Mortgage Loans

A Beginners' Guide To Mortgage Loans

Homebuyer education tips and advice created with the first time buyer in mind.

When it comes to mortgage loans and other methods of borrowing money, you have probably heard a lot about having good debt versus having bad debt. It all sounds confusing; after all, having debt is never really a good thing, is it? Well, when it comes to buying a home, only a very select few are actually able to complete the purchase without borrowing money. Because mortgage loans are secured by the home they will be used to purchase, typically low when it comes to interest rate, and used to purchase an asset that will almost always grow in value over the long term, it can be said that if any loan is a good loan, a home mortgage loan fits the definition.

Getting Prepared For A Home Loan

Getting prepared for your home loan If you are getting ready to start thinking about home ownership, it is a good idea to consult with a reputable mortgage lender first. In many cases, they will have you go through the prequalification process, which basically lets you know exactly how much you will be eligible to borrow on a home while letting the home sellers know that you are qualified to follow through with the deal. You can use our mortgage calculator to run your own numbers first if you prefer.

Your bank or mortgage lender will go through an underwriting process with you before ultimately lending the money. This process is where they check your credit history, employment history, and a number of additional factors that determine what mortgage loans will be available to you and how much you will be able to borrow. They need to make sure your situation fits in with conforming guidelines because banks ultimately bundle the loans they issue together and then resell them to larger financial institutions like Fannie Mae and Freddie Mac (yes, the ones you have been hearing so much about in the news lately).

Until recently, it was possible to skip over much of the scrutiny with signature only home loans, no documentation mortgages, and many types of subprime loans. However, because many lending institutions got carried away with lending too much money to people that ultimately weren't able to make the payments, non-traditional mortgage lending has been substantially impacted. These days, the traditional and comprehensive underwriting process is once again the norm.

How Much Down?

The primary goal of mortgage lenders is to make loans. While they are restrictive due to the need to protect themselves and stay profitable, along with the necessity to comply with all of the appropriate government regulations, they do want to make loans. Because the home itself will secure the majority of the money borrowed, the difference is made up by your down payment. Here is what is common...

Traditional 20% Down - While it is not always easy to do, especially for first time homebuyers, making a 20% down payment on a home will not only help you attain the best prime mortgage loan deals, but it also allows you to have enough equity to avoid having to pay additional mortgage insurance.
Less Than 20% Down - While mortgage loan programs are available that allow for less than a 20% down payment, borrowers will be responsible for paying an additional mortgage insurance premium until their equity in the home passes the 20% mark.
Piggyback Loans - A common solution for those who won't be able to make a 20% down payment is to take out a piggyback (sometimes called combo) loan. This means that you'll borrow 80% of the home's value on the primary mortgage and then take a second mortgage for the remaining portion borrowed. By doing this, it is possible to avoid paying mortgage insurance.

While there are all kinds of solutions available for home buyers to help them purchase a home with as little money down as possible, it is important to understand that each method has its own drawbacks. Plain and simple - the most affordable and reliable home loans are available to those who are able to make a 20% or more down payment.

Common Types Of Mortgage Loans

While there are literally hundreds of different types of mortgage loans available these days, most of them fit into these categories:

Traditional Fixed Rate Mortgage Loan - This is when a certain interest rate is locked in for the entire length of the loan. It is most common to see 30 year and 15 year fixed rate home loans, although other term lengths are available too.
Adjustable Rate (ARM) - The adjustable rate mortgage is what has gotten so many people into mortgage trouble over the past few years. Basically, an ARM is when the money borrowed is fixed at a certain interest rate for a specified number of years and then adjusts to the current market rates after that period has passed. When an ARM readjusts, the payments can often change substantially for the worse.
Interest Only - Usually another type of ARM, an interest only loan means that the borrower will only pay interest and no principle on the mortgage loan for a specified amount of time (usually just a few years). Once the interest only time period expires, the loan readjusts to full market rates. This has also been a common culprit for so many people who have found themselves with mortgage troubles recently.
VA Home Loan - Available to United States veterans and qualifying spouses of deceased vets, a VA home loan allows for a significantly reduced or eliminated down payment. These loans are insured by the Veterans Administration.
FHA Mortgages - Government insured through the Federal Housing Administration, FHA loans require lower down payments, are less restrictive to qualify for, and include mortgage insurance in the loan payments. Exact regulations differ from state to state.

Again, while there are hundreds of types of mortgage loans available to borrowers, almost all of them will fit in with one of these categories.

Need Advice? Call GFM

Borrowing money to purchase a home can be an extremely confusing process. Because there are so many types of loans available, each with their own unique nuances and requirements, it's not just a matter of going to the bank and asking for money. Taking a home loan is a big decision and should be taken very seriously. If you have any questions about the process, or perhaps what type of loan might be best for your specific needs, GFM can help. Just give us a call and we'll be happy help you down the right path when it comes to mortgage loans.