Buying a home can be a major investment for most people. They may not have the budget to purchase a new home. For this reason, they may decide to take out a home loan. However, when shopping for a home loan, you need to remember that there is no one-mortgage-fits all. Home loans can be suited according to your circumstance. If you find yourself asking “What kind of loan should I get?” this article will guide you on choosing the right home loan.
Fixed Rate Loan
Fixed rate loans are the most common type of home loan. It offers a single interest rate and monthly payment through the term of the loan which is usually 15 or 30 years. If you do not have plans of relocating soon, this type of home loan is right for you. Even if interest rates increase or decrease, your loan terms will not change. This means that you at least know how much to pay each month.
Adjustable Rate Mortgage
If you are asking yourself “What kind of loan should I get?” ARM loans might be worth considering. Compared to a fixed rate loan, adjustable rate mortgage loans offer a much lower interest rate for a certain period of time and then the rates will adjust usually once a year based on current interest rates. If the interest rates go up so will your monthly payments and vice versa. If you have a poor credit rating, the ARM loan is the right option. With your poor credit rating, it is unlikely that you will get good rates on fixed-rate loans.
FHA Home Loan
The FHA loan is offered by the Federal Housing Administration. Typical loans require a 20% down payment of the purchase price of your home. However, with a FHA loan, you can pay a minimum of 3.5%. FHA loans come with several caveats. Aside from that, the rates are usually fixed with either a 15 or 30 year term. You are required to pay mortgage insurance either upfront or throughout the duration of the loan.
VA Home Loan
If you have served in the US military, you can apply for a Veterans Affairs loan. It can be an excellent alternative to a traditional loan. If you are eligible, you may be able to buy a new home with no down payment and mortgage insurance requirement. If you are a war veteran who has served 90 consecutive days during wartime and 180 during peacetime or 6 years in the Reserved Forces, you may be entitled to a VA loan. However, there are strict requirements on the kind of home you can purchase. It should be your main residence and the property should meet minimum requirements.
USDA Home Loan
USDA Rural Development loans are designed for families in rural areas. The government through the Department of Agriculture will shoulder 100% of the cost of the home so you do not have to worry about the down payment.
