Buying a new home comes with a wide variety of factors that you must consider. One of the most important, of these factors, is the type of home loan, or mortgage, you will decide to go with. Here are a few different types of home loans and which ones are right for you.
The simplest type of mortgage you can get is a fixed rate loan. It establishes a set interest rate that will last for however long the loan is expected to be paid off. Most often, these loans are set for 15 or 30 years. This type of loan is best for people who want their monthly expenses to be as predictable as possible. You will be expected to pay the same amount of money every single month, no more no less. However, this loan isn’t the best option if you do not plan on staying the home for a large portion of the loan’s life.
An adjustable-rate mortgage usually offers interest rates that are lower than those of a fixed rate loan for a shorter period. The low rates last for about 5 or 10 years, depending on what you have agreed to, and the interest will then rise about every year after. Rising interest rates means rising monthly payments. This is a great option for anyone that is looking to move into a home but doesn’t plan on staying for a very long time. They can take advantage of the low rates for the beginning period of the loan. This option is also good for people with a lower credit score. Trying to get a good fixed rate loan with a low credit score can be very hard, so the adjustable-rate mortgage can be a great alternative.
A Federal Housing Administration loan allows people to buy homes with down payments as low as 3.5%. These loans are limited to homes that cost $417,000 and below. The rates on these loans are fixed with 15 or 30-year terms. The buyer must also pay a mortgage insurance that costs around 1% of the however much the loan is for. These loans are great options for people that are unable to save enough for very large down payments, although they may be a bit more expensive in the long run.
A bridge loan allows people to purchase a new home before they have sold their previous one. The lender will combine the new mortgage with the mortgage on your previous home. Once you have sold the previous home, you pay off the mortgage on it and refinance. This option is great for people that only need the finance 80% or less of the total for both homes and with good credit. This option may be able to prevent a lot of stress if the proper requirements are met.
These are just a few of the many types of home loans available. It is very important that you do the proper research to find which one is best for you.