Financing Your New Home

With a variety of loans available, new home buyers are finding that their builder or financial institution can arrange construction financing they can afford.

(ARM) Adjustable Rate Mortgages
Interest rate is adjusted periodically to market rate and is usually lower initially. However, if interest rates increase, your monthly rate will increase. If interest rates decline, your monthly payment will decrease. When considering an adjustable rate mortgage (ARM), the following points should be reviewed.

The initial interest rate.
The index that the new rate will be measured by.
How often the rate will change.
Whether there is a cap (or maximum) amount that the rate can vary at each adjustable time.
Whether there is a cap (or maximum) interest rate to the entire loan.

Construction Loan
Most construction loans combine the construction phase and permanent loan into one package. Your builder, with your consent, will draw money against your construction loan as work progresses. However, you are charged interest only on the money used for the number and days it is used each month. Most construction are (ARM) loans with the initial rate locked for 1 to 5 years depending on the program you select. When the construction is completed, you will have the option: to remain on the (ARM) or, for a small fee, convert to a fixed rate within a certain time frame.

Fixed Rate Mortgage
The interest rate and payment of principal will remain the same for the length of your loan. However, if taxes and insurance are included in your house payment, your payment may change from year to year.

(GPM) Graduated Payment Mortgage
Payments start at a lower rate and usually increase for the first 5 to 7 years and remain constant for the remaining term of the mortgage.

Growing Equity Mortgage
An agreement where a buyer takes a loan at a fixed rate, but agrees to increase his payment 2 to 3 percent annually. These increases are applied directly to the loan principal, allowing the loan to be paid off earlier than normal.