Types Of Home Loans Which Is Best For You

Shelter is one of the major necessities of life but only very few fortunate people can actually pay out rightly for a new home. A better alternative is to take a home loan. Home loans come in different types and there is no one-mortgage that fits and works for all. When trying to secure a home loan, some of the factors to put to consideration include where you live, the duration you plan to stay there, how much you are willing to pay for the house etc, these factors will help you to choose the best home loans that suit your peculiar circumstance. Below are the common types of home loans and those whom they are suited for. This piece will help you to make a more informed decision;

1. Fixed-rate loan:

This is the most common type of home loans, and just as the name connotes, it comes with a fixed interest rate and monthly repayment amount for the life of the loan. Typically, these type of loans have a lifespan of either 15 or 30 years.

This type of loan is apt for people who desire a good amount of predictability and do not plan to move anytime soon. Regardless of the fall or rise in interest rate, the terms of the loan remain the same, so you know exactly what you are paying and for how long you will be paying it. If you are not planning on moving anytime soon, particularly during the life of the loan, then this home loan is best for you.

2. Adjustable-rate loan:

If you do not plan to stay in your home for the entire period of your loan, then the adjustable-rate loan may just be the best thing for you. This form of mortgage offers an interest rate which is typically lower than what is obtainable with the fixed interest rate for a period of five or ten years. After the expiration of this period, your interest rate, and hence payment, will adjust corresponding to the prevailing interest rate. So in instances where the current interest rate rises, your monthly payments will also rise, and vice versa.

Just as was stated above, the adjustable-rate loan is apt for people who plan to move or sell their home before the expiration of their fixed rate period. It is equally good for potential buyers with low credit scores. Such people usually find it difficult to get good rates on fixed-rate loans. ARM will offer rates that are more humane.

3. FHA loan:

Typically, most home loans require buyers to make a 20% down payment of the purchase price of the house. But this is not the case with the Federal Housing Administration loan which allows buyers to put down as little as 3.5 %.

This type of loan is great for buyers who don’t have so much for a down payment. A few things to note about this loan include; they are limited to $417,000 and come with fixed rates of either 15 or 30-year terms. Buyers may also be required to pay mortgage insurance, which would be around 1% of the cost of the loan. This would be paid either upfront or over the course of the loan.

4. VA loan:

It pays to serve your country, the Veterans Affairs loan reveals that much. This form of home loan is an excellent alternative to the traditional mortgage and it is designed for people who have served in the United States military. It gives veterans access to great homes without the need to make down payment and no mortgage insurance requirement.

Veterans who qualify for this loan include those who have served at least 90 consecutive days during wartime, or 180 days during peacetime, or six years while in reserve.

5. USDA loan:

The USDA loan is designed for poor or financially struggling families that live in rural areas. This type of home loans does not require a down payment, as the government finances 100% of the home price. To qualify, your debt load must not exceed your income by more than 41%. Also, you will be required to secure mortgage insurance.

6. Bridge loan:

Known also as repeat financing or gap loan, this loan option is an excellent choice for people that are buying a new home before selling their previous residence. The current and new mortgage can be wrapped up into one by lenders. After the sale of your home, you can pay off the mortgage and then refinance.

This is apt for homeowners that have excellent credit with a low debt-to-income ratio. This type of loan helps to cushion the effect of transitioning from one house to another.