Today's homebuyer has more financing options than have ever been available before. From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually anyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Though this article discusses some of the more common loan types, you should spend time talking with different lenders before deciding on the right loan for your situation.

General categories of loans
Most loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features of both.

Other hybrid loans may start with a fixed interest rate for several years, and then later change to another (usually higher) fixed interest rate for the remainder of the loan term. Lenders frequently charge a lower introductory interest rate for hybrid loans vs. a traditional fixed-rate mortgage, which makes hybrid loans attractive to homeowners who desire the stability of a fixed-rate, but only plan to stay in their properties for a short time.

Balloon payments
A balloon payment refers to a loan that has a large, final payment due at the end of the loan. For example, there are currently fixed-rate loans which allow homeowners to make payments based on a 30-year loan, even thought the entire balance of the loan may be due (the balloon payment) after 7 years. As with some hybrid loans, balloon loans may be attractive to homeowners who do not plan to stay in their house more than a short period of time.

Time as a factor in your loan choice
As has been discussed, the length of time you plan to own a property may have a strong influence on the type of loan you choose. For example, if you plan to stay in a home for 10 years or longer, a traditional fixed-rate mortgage may be your best bet. But if you plan on owning a home for a very short period (5 years or less), then the low introductory rate of an adjustable-rate mortgage may make the most financial sense. In general, ARMs have the lowest introductory interest rates, followed by hybrid loans, and then traditional fixed-rate mortgages.

FHA and VA loans
U.S. government loan programs such as those of the Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) are designed to promote home ownership for people who might not otherwise be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than conventional loans, and often require smaller or no down payments.

Bear in mind, however, that FHA and VA loans are not issued by the government; rather, the loans are made by private lenders but insured by the U.S. government in case the borrower defaults. Remember too, that while any U.S. citizen may apply for a FHA loan, VA loans are only available to veterans or their spouses and certain government employees.

Conventional loans
A conventional loan is simply a loan offered by a traditional private lender. They may be fixed-rate, adjustable, hybrid or other types. While conventional loans may be harder to qualify for than government-backed loans, they often require less paperwork and typically do not have a maximum allowable amount.

PROS AND CONS OF A BI-WEEKLY MORTGAGE
(From GLVAR website)

DEAR BOB: Is there an advantage of paying my mortgage every two weeks? – Bernie R.

DEAR BERNIE: You are referring to a bi-weekly mortgage, which has 26 payments every year, instead of 12 monthly payments. Each bi-weekly payment is one-half of a regular monthly payment. The result is the same as making 13 monthly payments every year.

This means your 30-year mortgage can be paid off, depending on the interest rate, in about 21 years, thus saving you thousands of interest dollars.

But you can accomplish the same result by dividing your monthly principal and interest payment (disregard any property tax and insurance escrow impounds) by 12 and adding that amount to each regular monthly payment.

To illustrate, suppose $1,200 is your monthly principal and interest payment. Dividing $1,200 by 12 is $100. This $100 is the extra principal amount to add, in this example, to every regular monthly mortgage payment you make to get your mortgage paid off in about 21 years.

Whatever you do, please don't waste your money paying a company to convert your mortgage to a bi-weekly mortgage when you can accomplish the same result yourself at no extra cost.

TO GET RID OF FHA MORTGAGE INSURANCE, REFINANCE ELSEWHERE
(From GLVAR website)

DEAR BOB: Each month I have to pay MIP mortgage insurance on my FHA home loan. This is a total rip-off because my mortgage is only about 75 percent of my home's market value. But my mortgage lender refuses to cancel the MIP although I provided an appraisal from a licensed appraiser to show it is unnecessary. What can I do to avoid wasting money on FHA mortgage insurance? – Angie S.

DEAR ANGIE: You are correct FHA mortgage insurance is a rip-off in your situation. However, there is no law requiring your FHA lender to cancel your unnecessary MIP. The only way to get rid of FHA mortgage insurance is to refinance with another lender that doesn't require mortgage insurance.