When you’ve finally decided to buy a home, chances are you should also be decided on what home loan to pursue it. Unless you have hundreds of thousands at your disposal, applying for a loan is the easiest way to own property earlier. Considering the many home mortgage loans available today, it is wise to find what suits you best to compliment your budget and lifestyle better.
Where you choose to reside, how long you see yourself in that area, and what you see yourself doing all help determine what home loan you should apply for. To find out what options you have, breeze through the following paragraphs and check out the most common home loan types and whom they’re most applicable for.
Today, a fixed-rate loan is one of the most familiar types. Fixed-rates loans have one interest rates for the entire duration of the loan. This typically runs for 15 to 30 years and is paid for every month, depending on your chosen arrangement. This is best for borrowers who don’t have problems with a foreseeable monotony.
Simply put, this loan is for borrowers who want to settle permanently and will not be relocating or moving any time soon. The deal is that you pay a fixed amount for Y number of years. The economy’s ups and downs—not to mention the seesaws of interest rates—will not affect your set loan guidelines. Should you see yourself growing elsewhere or blooming in different places in the next couple of years, this isn’t for you.
Another familiar loan type is an ARM. Adjustable-Rate Mortgages propose generally lower interest rates for 5 to 10 years compared to fixed-rate ones. Soon after, your fees and interest rates will alter after every year, adjusting to present interest rates. Should these rates ascend, so will your monthly dues. Should they decline, your monthly payments will follow as well.
This is best for borrowers with humble credit scores, as these specific economic profiles don’t always get favorable rates on fixed-rate loans. ARM loans can push those interest rates low enough to make residential ownership a lot easier. This loan type may work great for those who intend to sell their home and relocate before their fixed-rate duration is over, and the rates start fluctuating.
FHA Home Loans
A kinder option is an FHA loan. Federal Housing Administration loans are loans that are insured by the government. Commercial FHA-approved lenders extend these loans but require that the borrower pay for mortgage insurance throughout the life of the mortgage loan to protect the lender should a borrower default.
Many loans require a 5% to 20% down payment, but FHA may only demand 3.5%. Of course, it is understood that this only applies should a borrower reach FHA’s standard requirements. Still, FHA loans have less stringent conditions and are usually easier to comply. These loans are designed for people whose credit scores are low to moderate.
There are also different types of FHA loans one can choose from, so there is no shortage of government backed-up loans.
An equally viable loan for families living in rural areas is the USDA loan. A U.S Department of Agriculture Rural Development loan takes care of the entire home price for qualifying families. That means 100% of the house’s sum is taken care of. Upfront deposits and interest rates are a thing of the past with this loan type.
However, this loan is exclusive to those with very low incomes. Meaning, those whose salaries are below 50% of the area median income depending on where you are in the country.
As long as your debt capacity does not surpass your income by 41%, this may be for you. Similar to FHA’s standards, you will also have to pay for mortgage insurance.
VA Home Loans
Those who’ve served in the U.S military are also in for a treat. A Veterans Affairs loan is an incredible substitute to a conventional mortgage. That said, this loan type is available only to Veterans who meet specific guidelines.
Those who are eligible can bag a house with no down payment involved and no required mortgage insurance.
Best known, however, that it will always work to your advantage if you have savings set aside even before applying for any loan program. Know that any loan will always have fees and rates collected even before the bulk of the money is given to you. Working on bettering your credit score will also do you wonders.