The number of people moving and/or becoming first-time homebuyers rose sharply over the past year even though the housing market has seen a significant rise in average prices. While lots of people are buying, others have had to put homeownership on hold.
Are you in the fortunate position of being able to become a homeowner? Are you ready to jump into the real estate market?
The key to buying a home is finding the right type of mortgage for you and your situation. Smart homeowners will familiarize themselves with the different types of home loans available.
Did you know that not all home loans are negotiated equally? Keep reading to learn the many different types of home loans that exist today.
1. Conventional Loan
This is the most common type of mortgage loan. With a conventional loan, you can buy a home with as little as 3% of the purchase price as your down payment. You need a minimum credit score of 620 to qualify. If you put down 20% instead, you will not have to buy private mortgage insurance (PMI).
If you have a stable income, can put down at least 3%, have strong credit, this type of loan is of benefit to you.
2. Adjustable Rate Mortgage (ARM)
An ARM is just what the name implies. The interest rate changes depending on how the market rates fluctuate. When you secure an ARM, you agree to an introductory rate that’s fixed for 5,7, or 10 years.
Your interest rate changes after the introductory period. Your rate can go up or down depending on the market.
3. Fixed-Rate Mortgage
Do you want a very predictable monthly payment? A fixed-rate mortgage helps you budget and plan for your finances. The interest rate and payment stay the same throughout the life of the loan.
If you lock into a fixed-rate mortgage when interest rates are high, your only option to reduce your interest rate is to refinance the loan. Conversely, if mortgage rates are low, you’re set with a lower rate for the life of the loan.
4. Government-Backed Loan
There are various types of government-backed loans. They are insured by government agencies. The three types are FHA, VA, and USDA loans.
These are less risky for the lenders because if you default on the loan, the government is on the hook for repayment.
Are you in the middle of the process of buying a property? Closing cost credit is a system in which you can reduce your final fees when buying a property. Click to read this guide here to closing costs, credits, and price reductions.
Types of Home Loans: Which One Works For You?
Now that you know the different types of home loans, you can choose the one that works best for you in your home buying process. Of course, this will depend on your credit score, income, and debt level. An experienced mortgage broker can help you find the best type of mortgage to get you into your dream home.
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