Types of Mortgages

Types of mortgages for Salem Oregon area home buyers

With lending changing in recent months, home buying is not as easy as it has been in the past few years. Despite this change, there are many types of loans for home buyers to consider.

  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages
  • FHA and VA Loan
  • ODVA Loan
  • Oregon Bond Program
  • USDA loan program

Fixed Rate Mortgages

Fixed rate mortgages are pretty basic. Your interest rate is fixed for the entire length of the loan. The loan can be for 15, 20, and 30 years. Most people liked fixed rates loans because they don’t change. This makes budgeting easy and buyers know what future payments will be. 15 and 20 year loans tend to have a lower interest rate than a 30 year loan because there is less risk to the lender. Buyers often choose 15 and 20 year loans when they want to pay their home off faster. Equity builds up faster with this type of loan, but the trade off is that the payments are higher. This can be problematic if a hardship occurs. Whether this term loan makes sense depends on what your financial situation is. Most buyers choose the 30 year loan term. While the interest rate is higher than with the 15 and 20 year loans, the monthly payment is lower, which makes it easier to qualify for a loan. Equity builds more slowly, so over the life of the loan, buyers end up paying more interest on a home loan than with the 15 and 20 year loans.

Adjustable-Rate Mortgages (ARMs)

Due to the economic climate, many buyers may be afraid to consider an ARM purchase with a home. ARM’s are a more risky loan since the interest rate will adjust after a certain period of time. ARM’s typically have a cap rate, which is the maximum amount the interest rate will go. There are many different financial indexes which is what ARM interest rates are based on. The LIBOR (London Interbank Offered Rate) is very common, and is called the LIBOR ARM. Other indexes include the COFI (Cost of Funds-Indexed) ARM, T-Bill rate, and the Certificate of Deposit Index. Your local Salem Oregon lender can talk with you about whether or not an ARM makes sense for you.

Government Insured Loans

For some buyers the Veterans Administration (or VA) loan may be possible or an FHA loan.

  • VA Loans: Honorably discharged veterans may qualify for a VA loan. VA loans are insured by the Veteran’s Administration. VA is one of the few programs that offer 100% financing these days. Buyers can also get up to 6% in seller assisted closing costs and prepaids on these loans.
  • FHA Loans: The Federal Housing Administration (FHA) insures home loans. The loan program originally started for low-income families to get into housing since the down payment requirement is 3.5%. FHA loans can be a great loan for first-time home buyers that don’t have a lot of cash.

Oregon loan programs

  • ODVA: The Oregon Department of Veterans’ Affairs has its own loan program for vets. It is a 5% down program with a maximum lifetime loan of $417,000. ODVA only originates loans so no refinances through them. Interest rates tend to be lower, and closing costs are very competitive. It is an excellent choice for veterans buying a home here in Oregon.
  • Oregon Bond Loan: The Oregon Housing and Community Services Program has a loan program commonly called the “Oregon Bond Loan.” It is for lower income families and encourages home ownership. There are income caps for the program, but the interest rates are very low.

USDA Rural Loan Program

The Rural Development Housing & Community Facilities Program has a loan program for lower income families that want to purchase a home in a rural area. There are income caps for this program as well as location. The property has to be in a designated rural area. This program does not require a down payment, so it can be a great program for those that qualify.

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