Before you decide to buy your home, it is important to understand the different types of home loans that are available and which one would work best for you.
When it comes to deciding which home loan option to choose, you have a couple of choices to choose from.
With a fixed-rate mortgage your principal and interest payment will remain the same for the entirety of the loan term. However, it is possible that your payment might change if your property taxes or insurance premiums alter.
Adjustable rate mortgages:
It is vital to understand how much your home loan can adjust in the future and whether or not you will be able to afford the payments.
If you are a first time homebuyer, it is advisable to obtain a 30-year loan in order to keep your mortgage payments as low as possible. On the other hand, with a shorter loan term you can pay less interest over the term of the loan and also build equity faster. While shorter loan terms have a lower interest rate than 30-year loans, the payments are higher due to having to pay the balance back quicker.
A Federal-Housing Administration will protect the lender in the case of a default by the borrower. However, it is necessary to pay mortgage insurance with these specific loans.
Typically, these loans require a down payment of 10-20%, however it is possible to find some with just a down payment of 5%. If you do decide to make a down payment less than 20%, you will also have to pay private mortgage insurance.
You will need a jumbo loan if you are borrowing an amount above the limit for a conforming loan. It requires a down payment of at least 20% and has stricter credit standards as well due to the high level of risk associated with the large loan.
The U.S. Development of Veteran Affairs solely offers these loans to veterans, current members of the military and their spouses. If you are eligible, you are able to buy a home with no down payment and without having to pay a mortgage insurance.
USDA Rural Housing Development Loans:
If you are inquiring a loan from the U.S. Department of Agriculture you do not need a down payment or mortgage insurance, however they are limited to homes in specific rural areas as well as to borrowers with up to 115% of the local median income.
When you’re beginning the process of buying a home, it is necessary to be informed about your home loan options.