If you have finally decided to purchase a home, one of the first things that you need to do is to secure a home loan. And contrary to what some people may believe, there are a few types of home loans, including the FHA loan, that prospective home buyers can choose from.
“As a prospective buyer, choosing a suitable mortgage is essential, considering the fact that mortgage debt ranks as the number one source of debt among Americans despite the drop in the number of first time home buyers in recent years.”
Here is a brief look into the different types of mortgages as well as the people these home loans are suitable for.
Federal Housing Administration loan
Some people think of the FHA loan as being reserved only for first time home buyers but the truth is that this type of mortgage is available for most home buyers.
However, this type of mortgage is suitable for prospective buyers with little savings allocated for down payments. Be aware that if you choose this type of mortgage, the amount of money you can borrow has limitations and there are restrictions, including rates fixed at 15- or 30-year terms.
Apart from that, you need to get mortgage insurance either upon securing the home loan or during the duration of the loan period.
Fixed-rate loan
The fixed-rate loan is one of the most common mortgages available to prospective buyers. With this type of loan, the interest rate and monthly payments are fixed for the duration of the loan. The loan period is usually 15 or 30 years.
This loan is ideal for buyers who want to know ahead of time how much they are going to pay toward their home loans for a specific duration of time.
Another benefit of this loan is that the terms of the loan are immune from the fluctuations in the interest rates. Secure this type of loan if you are planning on living in the house you are planning to buy for most of the duration of the mortgage.
Adjustable rate
The adjustable rate mortgage or ARM allows buyers to get lower interest rates compared to fixed-rate loans, usually for a period of five or 10 years.
Beyond that period, the interest rates and the monthly payments are adjusted, usually on an annual basis to reflect prevailing interest rates. That means that you can pay more or less monthly, depending on the current interest rates.
This mortgage is ideal for people with low or poor credit scores. It is also suitable for buyers who intend to move out of their homes before the end of the fixed-rate period.
Veterans Affairs Loan
Home buyers who have served in the United States military may want to secure a Veterans Affairs or VA loan. Those who qualify for this loan can enjoy the benefit of buying a home sans a down payment and do not need to fulfill the requirements of a mortgage insurance.
In order to secure this type of loan, you must have served 90 consecutive days during wartime, 180 days during normal or peace time, or served at least six years as a reserve.
But despite these benefits, you must be aware that there are a few strict requirements, especially when it comes to the type of homes you can choose from. Furthermore, the house you buy needs to be your primary residence and such a property should meet the minimum property requirements.
USDA loan
The USDA Rural Development loan is available for home buyers living in rural areas. With this mortgage, the government will finance the full price of the home with no required down payment and usually at discounted interest rates.
This mortgage is designed for families struggling with their finances. However, you should be aware that this loan requires you to have a debt load not exceeding 41 percent of your income. Furthermore, you will need to buy mortgage insurance.
Bridge loan
If you are buying a new home before selling your current home, you can consider getting a bridge loan. With a bridge loan, also known as a gap loan, your chosen lender will consolidate your existing mortgage with a new one into a single payment. Once your old home is sold, you can then pay off your mortgage and apply for a refinance.
This loan is suitable for buyers with good credit ratings and low debt. You can also apply for this loan if you do not need to finance more than 80 percent of the combined value of the two homes.
Don’t know which type of mortgage is right for you? Our team of experts can help you arrive at the best decision, Call Golden Eagle Mortgage @ 831-636-5363 Today!
