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Today's financing techniques can be confusing. What are the basic types of loans I should know about?
Here is a brief run-down of four major mortgage plans.

Fixed-Rate Conventional Mortgage - A conventional loan is a loan made to a buyer without a third-party participant, such as VA or FHA. Fixed-rate conventional loans are typically paid off in equal monthly payments spread over 15, 20 or 30 years. The interest rate stays the same for the life of the loan; therefore, the monthly principal and interest payment remains constant. Shorter terms mean somewhat higher monthly payments. Shorter terms also mean more rapid equity growth, mortgage pay-off and dramatic savings on total interest payments.

Terms of a conventional loan vary among lenders, but many can be obtained with as little as a 5 to 10% down payment. When the down payment is less than 20%, it is necessary to obtain Private Mortgage Insurance (PMI) to protect the lender from a buyer's default.

* Advantage: Quick processing and stable payments.

Adjustable-Rate Mortgage (ARM; also "Variable Rate") - The interest rate may go up or down over the years and is tied to a financial market index (such as one-year Treasury bills). Monthly payments may also be adjusted on a periodic schedule. Most ARMs set a maximum adjustment (or "cap") on possible increases to interest rates, monthly payments and/or a maximum cap on rates for the life of the loan.

* Advantage: The lower initial interest rate and monthly payment allows the buyer to pay less in the early years for a larger loan and helps buyers qualify for a more expensive house than with a fixed-rate loan. Caps offer peace-of-mind rate ceilings.

FHA Loan - Strictly speaking, FHA does not make loans; rather it insures loans, which increases lenders' willingness to make low down payment loans.

With an FHA-insured loan, a homebuyer can make a small down payment, a feature particularly attractive to first-time buyers. The down payment can be as low as 2.25%, depending on the size of the loan. Second mortgages are permitted within specific guidelines.

Points (prepaid interest) can be charged by the lender. The purchaser may negotiate the interest rate and points with the seller. FHA buyers of single-family homes can finance 100% of closing costs.

FHA charges an advance Mortgage Insurance Premium (MIP) fee, as well as a monthly charge for all loans. Ask an agent how much the fee would be in your situation, and if you can borrow some of the fee and add it to the loan rather than measurably increasing your closing costs. FHA-insured mortgages offer a maximum loan amount that varies from area to area.

* Advantage: Low down payment, low interest rates, long terms, many are fully assumable loans, no prepayment penalty and a second mortgage is permitted under certain circumstances.

VA Loan - Qualified veterans can take out loans up to a specific limit with no down payment. These limits occasionally change; check with an agent for current rules. VA-guaranteed loans can be combined with second mortgages and are fully assumable by any qualified buyer. Rates and points may be negotiated with the lender. VA/FHA qualification guidelines are more flexible than those for conventional loans. Actual income qualifications are dependent on the type of loan requested.

* Advantage: usually no down payment; points can be paid only by the seller, although the buyer is charged a loan origination fee (tax deductible); no prepayment penalty and assumption may make your home very attractive to buyers when you decide to sell.

How much down payment should I make?
There are advantages to both large and small down payments, and which you choose depends on both personal choice and your financial circumstances.

Advantages of a large down payment: Less mortgage to pay off, smaller monthly mortgage payments and greater opportunity to find lower interest rates. Advantages of a small down payment: Less cash out of hand, therefore, more money for other costs and a larger monthly mortgage payment means a larger tax deduction for mortgage interest.

With an FHA loan or less than a 20% down payment on a conventional loan, you will be required by the lender to take out mortgage insurance. The FHA calls it MIP, while private companies call it PMI.

What are the best sources of cash for a down payment?
If your own bank account isn't large enough, you have several options. For example:

* Receive a tax-free gift from your parents (or others) documented by a "gift letter" stating no repayment is required (thus your debt burden is not increased). Some lenders may require you to use some of your own money in addition to the gift.
* Borrow against a life insurance policy.
* Borrow against a company pension plan.
* Cash in a retirement savings plan (even though you may have to pay a penalty for early withdrawal).
* Ask for a cash payment from your employer instead of next year's raise.
* Obtain an advance on a future inheritance.
* Use your own business as collateral.
* Team up with friends, relatives or investors as partners in return for equity in your home. (You can, if you like, buy them out later.)

Should I shop for a loan before or after I find a place to buy?
It's a good idea to let an agent help you look for financing before you find a home. The agent is in constant contact with many lenders and can act as an invaluable "clearing house" of information. If you're actively house hunting but have not found the right home yet, ask the lender to do a "screening application." This details your income, debts and assets.

Knowing where you stand concerning how much money a lender will lend you (based on your income and credit rating) puts you in a good bargaining position. Sellers faced by deciding between two buyers--one who is "pre-screened" by a lender--may favor the offer from the buyer for whom getting a loan is almost a sure thing.