For a lot of people, buying a new home could not be possible without the help of banks or lenders – even multimillionaires use these loans to finance their properties or investments. For people who do not have the entire price up front, home loans are important and essential. Hence, there is a wide range of loans available for people willing to buy a new house. However, it might be difficult for you to decide on one that will fit you best, so in this article, you will be able to read about different types of home loans that are available:
1. Fixed-rate loans
This is perhaps the most common type of home loans. A fixed-rate loan gives a single interest rate and a monthly payment for the duration of the loan, which is usually around 15 to 30 years. This loan is perfect for people who want predictability and that are not planning to go somewhere else anytime soon. You pay an amount of money for a specific amount of years and that is it. The fluctuation of the interest rates will not change the terms of the loan, so you will always know what you should expect. Hence, these loans are best for people who plan on staying in their home for a good part of their lives or at least until the loan is paid off. But, if you are thinking about moving soon, you might want to check out the next option.
2. Adjustable-rate mortgage
This type of loan offers an interest rate that is lower than what you would get with a fixed-rate loan for a specific period of time, like 5 to 10 years. But after that, the interest rate will adjust, usually once a year. Hence, if the interest rate goes up, so does your monthly payments, if they go down, you will, of course, pay less. Buyers with low credit scores should opt for this option. People with lower credit scores cannot usually get good rates on fixed-rate loans, and ARM can nudge those rates down enough to put buying a home closer to someone.
3. FHA loans
Usually, loans require a 20% down payment of the purchase price of the house, with a Federal Housing Administration loan, you can actually put as little as 3.5% down. This loan is perfect for people with lower savings for a down payment. However, there are some downsides to this loan. Most loans are limited to $417.000 and they do not provide flexibility. Also, rates are usually fixed with either 15 or 30 years terms.
4. VA loans
If you have served in the military, a Veterans Affairs loan can be a perfect choice to a traditional loan. If you qualify for this, you can buy a sweet house with no down payment and no mortgage insurance requirements. This loan is right for veterans that served 90 days during wartime, 180 days during peacetime, or six years in the reserve.
5. USDA loans
These loans are made for families living in rural areas. The government finances 100% of the price, hence there will be no need for a down payment. According to PropertyFinancePartners, this loan is good for people living in rural areas, especially the ones that have financial difficulties. There is one catch though, the debt loan cannot exceed your yearly income by more than 41% and like FHA loans, you will need to buy mortgage insurance.
6. Bridge loans
These loans are also referred to as gap loans or repeat financing. It is a great option if you are buying a home before you sell your previous residence. Lenders will combine your new and current mortgage into one payment, and once your house is sold, you can pay off the mortgage and refinance. It is perfect for people with great credit and a low debt-to-income ratio.
These are 6 loans that you can consider taking out if you are looking to buy a new home. Before choosing one, do some research and read about the experience of other people so that you can get a bigger and better picture of the loan that will fit your needs best.