Home loan alternatives

Home Loans You can Afford

Think you can’t qualify for a home loan? Think again. Lenders are adapting and today you have several financial options. If you can’t afford a 20% down payment, no worries. You have other alternatives.

  • Low Down Payment: Allows you to put down less than 20% for a down payment and retain more cash for your house.
  • FHA Loan: Offers low down payment options and more flexible guidelines than available with traditional mortgages. This loan puts affordable homeownership in reach for many borrowers with less than perfect credit.
  • Fixed Rate ARM: Offers lower fixed rate periods from 1 to 10 years.
  • Interest-Only: Pay as much — or as little — of your loan’s principal each month as you like; it offers great flexibility for those with inconsistent cash flow.

Fixed Rate Loans vs. Adjustable Rate Loans

Fixed rate loans

Fixed rate loans have a stated interest rate that does not change over the life of the loan. Your monthly home payments will remain the same from the moment you take the loan until you finish paying it off. You’ll pay the interest on the loan, while also incrementally paying down the initial amount.

This is known as an “amortizing loan,” since the principal amount is being paid down with each payment. This eventually leads to completely owning a home outright.

Adjustable rate loans

Unlike fixed rate loans, adjustable rate mortgages, or “ARMs,” are linked to a financial index and change as the index changes. This means that your monthly payments may increase or decrease, depending upon the market.

What’s in it for me?

Because you’re assuming some of the risk, the lender will generally reward you with a lower interest rate during this initial fixed interest period. As a result, you can enjoy lower monthly payments, freeing up cash for your new home.

Many lenders offer hybrid ARMs that start off with a fixed rate period, which might be anywhere from 6 months to 10 years. These can be attractive to homebuyers who don’t plan on staying in their homes for more than 5 years.

ARMs have plenty to offer, and may help smoothen the way to homeownership. But if you are planning to stay and prefer stability, a fixed rate may be the better way to go.