Buying a home is a lifetime investment. Therefore, future homeowners should research thoroughly and seek professional advice to avoid making a mistake. If you are considering buying a home, here are the different types of mortgage loans you should know:
Adjustable-rate mortgages (ARMs)
ARM’s interest rates change with time (they can increase or decrease) depending on the current market conditions. Typically, most ARMs have a fixed interest rate for some years although the rate changes for the remainder of the term. It is crucial to look for an ARM with a cap (how much the interest rate can go up) to avoid running into financial problems in the future. If you are planning to stay in your home for a few years, ARM is the best mortgage because you can save a lot of money.
These types of mortgages are not insured by the federal government. Ideally, there are two types of conventional mortgages i.e., conforming and non-conforming loans. Conforming loans fall within the maximum limits set by FHFA (Federal Housing Finance Agency). However, non-conforming loans do not fall within the FHFA limits for example jumbo loans. For borrowers with a stable income, strong credit, and employment history, conventional mortgages are ideal.
If you are looking to buy a high-end home, you should consider taking a jumbo mortgage. However, to qualify, you need to have good credit, a high income, and a substantial down payment. In 2021, the loan limit for a single-family home is about $548,250 although in some areas the cost can rise to $822,375. It is essential to note that most renders offer jumbo loans at competitive rates.
Although the US government is not a moneylender, it helps Americans own homes. There are three types of government-insured loans:
• The U.S. Department of Agriculture (USDA) loans – these loans are vital for moderate to low-income borrowers. However, to get a USDA loan, you need to be in a USDA eligible area and meet certain requirements.
• U.S. Department of Veteran Affairs (VA) loans – if you are on active duty or a veteran, VA loans offer flexible and low-interest mortgage loans. Although these loans do not require a down payment, one needs to pay a funding fee.
• The Federal Housing Administration (FHA) loans – for borrowers who do not have a large down payment or good credit.
For fixed rate mortgages, you will pay the same interest rate. Ergo, your monthly payments are similar for 15, 20, or 30 years. If you are planning to stay in your home for at least 10 years, a fixed-rate mortgage is perfect.
Other types of mortgages for homebuyers include Balloon mortgages, interest only mortgages, and construction loans. It is essential for future homeowners to carefully assess their financial situation, research, and seek professional advice before taking a mortgage loan. Remember, buying a home is crucial but if you need peace of mind, making the right choices is key.