One of the biggest goals for many individuals is purchasing a home. However, buying your first home requires both preparation & funding, more specifically, a mortgage. Home mortgages come in a variety of sizes, and their flexibility makes homeownership much easier for people from different backgrounds. There are many types of mortgage loan plans to consider, and exploring every option will help home buyers make the best choice for their financial future. Below are a few of the most common types of home mortgages.
A fixed-rate mortgage is the oldest form of home loans, and it’s still a primary choice among buyers because of its stability. After placing a certain amount down on the home, a set monthly payment is designed that lasts throughout the loan, which can range from five years to over 30.
Three government agencies offer home loans: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the Veterans Association (VA).
FHA loans are beneficial to first time home buyers or those with lower credit scores. This type of loan also had minimal down payment requirements. Additionally, USDA home mortgages are tailored toward buyers in rural areas who are either in the middle class or earn a low income. With this type of loan there may be no down payment requirement and in some cases, is more affordable than an FHA loan. One final type of government-insured loan is specifically for those who served our country. The Veterans Association helps former U.S. military members acquire fixed-rate, low-interest home loans throughout the United States. VA loans do not require a down payment and, in some cases, spouses of deceased service members can also apply for this type of loan.
Jumbo loans are applied to houses that exceed federal loan limits. Interest rates are still comparable with average home loans, but they allow buyers to acquire mortgages for properties in high-cost neighborhoods. However, there are specific requirements for jumbo mortgages, including a mandatory 10- to 20-percent downpayment and a debt-to-credit ratio under 45.
With an adjustable-rate mortgage, the interest rate on a home loan changes depending on the market rate. One year, it may be substantially lower, but it could also increase drastically and jeopardize a person’s financial security. Although homeowners can save big on their total interest overall, monthly mortgage payments can quickly inflate, resulting in foreclosure and financial ruin. Adjustment rate mortgages are best for individuals who only intend to stay in a home for a few years before the low fixed rate is lifted, and the adjustable-rate comes into play.
Before you decide to purchase a home make sure to speak with several different banks or mortgage lenders. They will help you choose a plan that is right for you and your family!