El Paso Homes for Sale|Realty One Agent|First-Time Buyer

Mortgage Types

Understanding Different Types of Loans 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. 
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Financing Options


  • Fixed-rate mortgages
    As the name implies, a fixed-rate mortgage carries the same interest rate for the life of the loan. Traditionally, fixed-rate mortgages have been the most popular choice among homeowners, because the fixed monthly payment is easy to plan and budget for, and can help protect against inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms, but recently more lenders have begun offering 20-year and 40-year loans.

  • Adjustable-rate mortgages (ARM)
    Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.
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  • Hybrid loans
    Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage. However, be sure to check with your lender and find out how much the rate may increase after the conversion, as some hybrid loans do not have interest rate caps for the first adjustment period.
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 though 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. FHA loans are insured to the actual lender and VA loans are guaranteed 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.

El Paso Bond Money

EL PASO - Home financing and down-payment assistance are now available to low- and moderate-income El Paso families through a $24.5 million bond-financing program announced Wednesday. The El Paso Housing Finance Corp., an independent agency created by the El Paso City Council, has issued new bonds to provide mortgage loans at 5.25 to 5.375 percent interest. Down-payment and closing costs assistance of 3 percent of a loan amount are part of the program.

Buyers cannot have owned a home in the last three years, unless a home is in a targeted area. The annual income limit is $66,010 for a family of three or larger, and $80,360 if a home is in a targeted area.

The financing is available through  GECU and Patriot Mortgage.

Interested borrowers should e-mail or call El Paso Housing Finance Corporation Executive Director Adrian Duran at duranax@elpasotexas.gov or 541-4476.

Teacher Home Loan Program

The Teacher Home Loan- Initiative offers HUD-acquired, single family homes to public school teachers with the following significant benefits:

  • 50 percent discount off appraised value.
  • Only $100 Down Payment required*.
Under the Teacher Home Loan program, HUD offers homes located in designated revitalization areas. Revitalization areas are typically in low- and moderate-income neighborhoods, have many vacant properties and often have high crime rates, but are considered good candidates for economic development and improvement.

Homes offered for sale in the program were previously insured through the FHA and then foreclosed. HUD also reduces the downpayment requirement to just $100 if the home is purchased with an FHA insured mortgage.

Following are the requirements that Teachers must meet to use the program:

  • Teacher must live in the property as their sole residence for at least three years after purchase.
  • A "teacher" is defined as an individual employed full time by a public school, private school, or Federal, State, county, or municipal educational agency as a State-certified classroom teacher or administrator in grades K through 12.
In order to purchase an Teacher Home Loan Home you should be pre-approved and have a letter of commitment for an approved loan.

Once your offer has been accepted, you will have only 48hrs. to provide the required deposit and begin your loan approval process. Get started before making your offer to insure a smooth, stress free, transaction.

 If you are interested in purchasing a Teacher Home Loan, take a moment to learn about  real estate financing and FHA Qualifying.

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