The Home Loans: Which ones work for whom, and why?

Fixed-rate loan

The most common type of loan, a fixed-rate loan prescribes a single interest rate—and monthly payment—for the life of the loan, which is typically 15 or 30 years.

Right for: Homeowners who crave predictability and aren’t going anywhere soon. You pay X amount for Y years—and that’s the end. The rise and fall of interest rates (like the nationwide increase that followed the Fed’s action in December) won’t change the terms of your loan, so you’ll always know what to expect. That said, they’re best for people who plan to stay in their home for at least a good chunk of the life of their loan; if you think you’ll move fairly soon, you may want to consider the next option.

Adjustable-rate mortgage

ARM loans offer interest rates typically lower than you’d get with a fixed-rate loan for a period of time—such as five or 10 years. But after that, your interest rates (and payments) will adjust, typically once a year, roughly corresponding to current interest rates. So if interest rates shoot up, so do your monthly payments; if they plummet, you’ll pay less.

Right for: Home buyers with lower credit scores. Since people with poor credit typically can’t get good rates on fixed-rate loans, an ARM can nudge those interest rates down enough to put homeownership within easier reach. These loans are also great for people who plan to move and sell their home before their fixed-rate period is up and their rates start vacillating.

FHA loan

While typical loans require a down payment of 20% of the purchase price of your home, with a Federal Housing Administration loan, you can put down as little as 3.5%.

Right for: Home buyers with meager savings for a down payment. These loans come with several caveats. First, most loans are limited to $417,000 and don’t provide much flexibility: Rates are typically fixed, with either 15- or 30-year terms. Buyers are also required to pay mortgage insurance—either upfront or over the life of the loan—which hovers around 1% of the cost of your loan.

VA loan

If you’ve served in the United States military, a Veterans Affairs loan can be an excellent alternative to a traditional mortgage. If you qualify, you can score a sweet home with no money down and no mortgage insurance requirements.

Right for: Veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves. That said, the VA has strict requirements on the type of home you can purchase: It must be your primary residence, and it must meet “minimum property requirements” (that is, no fixer-uppers allowed).

USDA loan

USDA Rural Development loans are designed for families in rural areas. The government finances 100% of the home price—in other words, no down payment necessary—and offers discounted interest rates to boot.

Right for: Families in rural areas who are struggling financially. These loans are designed to put home ownership in their grasp. The catch? Your debt load cannot exceed your income by more than 41%, and, like the FHA loan, you will be required to purchase mortgage insurance.

Bridge loan

Also known as a gap loan or “repeat financing,” a bridge loan is an excellent option if you’re purchasing a home before selling your previous residence. Lenders will wrap your current and new mortgage into one payment; once your home is sold, you pay off that mortgage and refinance.

Right for: Homeowners with excellent credit and a low debt-to-income ratio, and who don’t need to finance more than 80% of the two homes’ combined value. Meet those requirements, and this can be a simple way of transitioning between two houses without having a meltdown—financially or emotionally—in the process.

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What a Realtor does behind the scenes to sell your Home!

They shop property online

Don’t we all? And yet, their real estate research goes beyond oohing and ahhing over a few photos on a Saturday night. Darbi McGlone, a Realtor with Jim Talbot Realty in Baton Rouge, LA, estimates she spends about two hours each day researching potential properties.

“This could include looking up flood zones, previewing the homes for out-of-state clients, or any number of specific things,” she says.

Plus, listings come and go fast in the real estate world, so agents need to check their multiple listing service database constantly, or else they’ll miss out. Sometimes the process of matching up properties with clients can take a very long time.

“I have a client who wants a Mid-Century Modern house in Carlsbad, but there aren’t many there,” says Rachel Collins Friedman, a Realtor with Sotheby’s International Realty in San Diego, CA. That means that she’s been searching the database regularly for that particular kind of property for three years (here’s hoping all that patience pays off).

They go prospecting

Of course, there’s nothing like seeing a house in all its brick-and-mortar glory, which is why most Realtors worth their salt spend tons of time driving around checking out new listings. In Friedman’s San Diego area, they call it “caravan day.”

“It’s a good way to preview properties, and it’s a good time to network with other agents and talk up your listing,” she says.

They attend pitch sessions

Agents don’t spend all their time sizing up homes. According to Friedman, they also spend tons of face time with other pros at pitch sessions—gatherings of local agents at cafes where they swap listing info in order to spread the word about your property if you’re selling, or to find the house that checks every box on your wish list if you’re buying.

They spend their own money on marketing

In addition to not getting paid until a deal is done, selling agents also spend their own money on marketing: magazine and newspaper ads, fliers, hiring a photographer, glossy prints, and premium placements on listing sites.

“Agents can spend thousands marketing a property,” says Friedman.

They write up offers and counteroffers

Offers and counteroffers are an extremely important part of the transaction, as they can save or net you thousands of dollars on a sale. Yet getting to the right price requires written offers and counteroffers every step of the way.

“It’s time-consuming to be writing them up, explaining to the client how to counteroffer and the ways to do so, and just keeping track of it all,” Friedman says.

They stick around for inspections

You might not be present when it’s inspection time, but a good agent will be. This gives the agent an immediate knowledge of what’s going on. Anything from termites to an iffy foundation can be relayed to the buyer immediately, according to Friedman. McGlone estimates inspections take roughly two hours.

They smooth bumps in the road

Not every sale goes smoothly—buyers and sellers get difficult all the time—but good agents try to shield their clients from the high drama unless there’s a reason to fill them in.

“It’s called putting out fires,” says McGlone. “It’s just fixing issues that a lot of times buyers and sellers never needed to be made aware of.”

They keep you calm when the pressure’s on

Good agents don’t just hand you a house. They can also act as a therapist, making your sale much less stressful.

“People get emotional. You have to be a problem-solver and keep a positive approach and come up with a positive solution,” Friedman says. “It might not take a lot of time, but it takes emotional energy.”

Why buy in 2016? Read the reasons!

Reason No. 1: Interest rates are still at record lows

Even though they may creep up at any moment, it’s nonetheless a fact that interest rates on home loans are at historic lows, with a 30-year fixed-rate home loan still hovering around 4%.

“Remember 18.5% in the ’80s?” asks Tom Postilio, a real estate broker with Douglas Elliman Real Estate and a star of HGTV’s “Selling New York.”“It is likely that we’ll never see interest rates this low again. So while prices are high in some markets, the savings in interest payments could easily amount to hundreds of thousands of dollars over the life of the mortgage.”

Reason No. 2: Rents have skyrocketed

Another reason home buyers are lucky is that rents are going up, up, up! (This, on the other hand, is a reason not to be thankful if you’re a renter.) In fact, rents outpaced home values in 20 of the 35 biggest housing markets in 2015. What’s more, according to the 2015 Rent.com Rental Market Report, 88% of property managers raised their rent in the past 12 months, and an 8% hike is predicted for 2016.

“In most metropolitan cities, monthly rent is comparable to that of a monthly mortgage payment, sometimes more,” says Heather Garriock, mortgage agent for The Mortgage Group. “Doesn’t it make more sense to put those monthly chunks of money into your own appreciating asset rather than handing it over to your landlord and saying goodbye to it forever?”

Reason No. 3: Home prices are stabilizing

For the first time in years, prices that have been climbing steadily upward are stabilizing, restoring a level playing field that helps buyers drive a harder bargain with sellers, even in heated markets.

“Local markets vary, but generally we are experiencing a cooling period,” says Postilio. “At this moment, buyers have the opportunity to capitalize on this.”

Reason No. 4: Down payments don’t need to break the bank

Probably the biggest obstacle that prevents renters from becoming homeowners is pulling together a down payment. But today, that chunk of change can be smaller, thanks to a variety of programs to help home buyers. For instance, the new Fannie Mae and Freddie Mac Home Possible Advantage Program allows for a 3% down payment for credit scores as low as 620.

Reason No. 5: Mortgage insurance is a deal, too

If you do decide to put less than 20% down on a home, you are then required to have mortgage insurance (basically in case you default). A workaround to handle this, however, is to take out a loan from the Federal Housing Administration—a government mortgage insurer that backs loans with down payments as low as 3.5% and credit scores as low as 580. The fees are way down from 1.35% to 0.85% of the mortgage balance, meaning your monthly mortgage total will be significantly lower if you fund it this way. In fact, the FHA predicts this 37% annual premium cut will bring 250,000 first-time buyers into the market. Why not be one of them?

Reason No. 6: You’ll reap major tax breaks

Tax laws continue to favor homeowners, so you’re not just buying a place to live—you’re getting a tax break! The biggest one is that unless your home loan is more than $1 million, you can deduct all the monthly interest you are paying on that loan. Homeowners may also deduct certain home-related expenses and home property taxes.