The following are details of some of the most well-known loan options:

Fixed-Rate Home Loans

With a fixed-rate home loan, your interest rate (and your payments) will stay the same over the life of your loan. This could be important if you plan to stay in your home for several years. When you choose the number of years to repay the loan (usually 15, 20 or 30 years), keep in mind that while shorter term loans may have higher monthly payments, they also let you pay less interest in the long run and build equity (the portion of the home you own) in your home faster.

30-Year Fixed-Rate Home Loans

The 30-year fixed-rate home loan is repaid with fixed monthly payments of principal and interest over the 30-year life of the loan. This home loan may fit your needs if you plan to remain in your home for many years. This is a good loan choice to keep your housing expenses low, so that you can use any extra cash for other purposes. A 30-year fixed-rate home loan may also give you the greatest interest expense deduction for tax purposes if you itemize your taxes. Consult a tax advisor to find out the impact on your tax situation.

20-Year Fixed-Rate Home Loan

The 20-year fixed-rate mortgage typically has a lower interest rate than a 30-year fixed-rate mortgage. You will pay fixed monthly payments of principal and interest over a 20-year period. This may save you a lot in total interest paid over the life of the loan and may fit your needs if you plan to remain in the home for many years.

15-Year Fixed-Rate Home Loan

The 15-year fixed-rate mortgage typically has a lower interest rate than a 30-year or 20-year fixed-rate mortgage. You will save far more interest over the life of the loan with this shorter term mortgage than a fixed-rate home loan with a longer repayment period. You'll also build up equity in your home sooner. This may be helpful for you if retirement is near or if you expect other large expenses in the coming years, such as paying for your children's education. However, the monthly payments you make on a 15-year fixed-rate mortgage will be higher than those you would make on a 30-year or a 20-year mortgage for the same total mortgage amount. Think about which of these options gives you the advantages you need most.

Balloon Home Loans

These short-term loans (usually a repayment period of five, seven or 10 years) often offer lower interest rates than fixed-rate mortgages in which principal (the remainder of the loan, excluding interest) and interest is repaid over a longer period. With a balloon home loan, however, only a portion of what you borrow is paid off during the repayment period. At the end of the repayment period, you are obligated to pay off the remaining loan balance in a lump sum, called a "balloon."

If you think you will sell or refinance your home in five to seven years, a balloon mortgage may fit your needs. Some lenders will allow you to extend your loan beyond the balloon date if you pay a fee and refinance your loan through that lender at the then current interest rate. Before you enter into a balloon mortgage, find out whether your lender will allow you to refinance this way. You should not choose this type of loan if you have concerns about meeting the refinance conditions or if you think the balloon term will be due before you are ready to move or refinance.

Adjustable Rate Home Loans

With an adjustable rate mortgage (ARM), the interest rate you pay may adjust at certain times to keep it in line with the financial index the ARM is tied to, such as the one-year U.S. Treasury index. If your ARM's financial index goes up or down, your monthly payments may go up or down as well. Find out how many interest rate adjustments are possible over the life of your loan. You'll also want to know the ARM's interest rate "cap," which will tell you the highest and lowest interest rates you could ever be charged during an interest rate adjustment period and your loan term (repayment period).

Depending on market conditions, ARMs may initially offer a lower interest rate than fixed-rate mortgages, which may help you to qualify for a larger loan. However, you should be able to manage a larger monthly payment if interest rates -- and your payments -- should increase.

An ARM may fit your needs if you plan to move or refinance your loan in the near future, if you expect your income to increase over the coming years or if you need a lower initial interest rate on your mortgage to be able to buy a home.

Some ARMs allow you to convert from an adjustable rate to a fixed-rate home loan at certain times during the life of your loan. Ask your lender if this feature is included with the ARMs you're considering.
 

Government Loans

The Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) are two federal agencies that offer government-insured loans. For these loans, you will need to apply through a lender that is approved to handle them and the property you purchase must meet certain minimum standards.

FHA Loans

With FHA insurance, you can purchase a home with a low down payment. FHA loans have a maximum loan limit that will vary depending on the average cost of housing in a given region.

VA Loans

The VA's guarantee allows a qualified veteran to buy a house by borrowing funds up to a certain maximum limit (that changes from time to time) with no down payment. If you are a qualified veteran, this home loan program may best fit your needs. To determine whether you are eligible, check with your nearest VA regional office.

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