Home loans, which one is right for you?
If you’re shopping for a new home, odds are you’re shopping for a home loan with a low-interest rate too.
If you are like many first-time home buyers, you may be just realizing there is more to a home loan than you ever thought.
You may even be overwhelmed by so many types of home loans made available by lenders.
Getting a mortgage can be a huge undertaking and pretty frankly, nerve-wracking.
But that’s ok. You are not alone with the feeling.
It’s actually pretty typical for first time home buyers to be overwhelmed. We are all on the same boat.
While getting a mortgage to buy a first home is quite a responsibility, you are starting it off the right way.
Getting familiar with different types of loans first is a huge step in the right direction.
This is because different home loans are available to borrowers with different qualifications.
So the first step in getting a loan is to know your options and what’s best suited for you.
Things like your veteran status, good credit score and can qualify you to more loans. While other things like your home price can widen or narrow your options.
Choosing your home loan wisely can save you a bunch on the down payment, interest, and even fees – no doubt.
And more importantly, it can help you make sure you can afford every mortgage payment for years to come.
If you are ready, let’s dive in.
Here are 7 common mortgage loans for first time home buyers.
1. Conventional and Fixed Rate Mortgage
A conventional fixed rate home loan is a type of “fixed-rate” loan that won’t fluctuate for the life of the loan. They are considered a safe bet type of loans because of their consistency. Your monthly loan payments won’t go up or down. They’ll simply stay the same as they are fixed.
Conventional fixed rate mortgage is generally your standard mortgage. They are typically available in 10, 15, 20 and 30-year terms. Sometimes they go up to even 40.
But 15 and 30 years are the most popular and common conventional fixed mortgage loans.
2. Interest-Only Mortgage
An interest-only mortgage gives you the option during the first 5 or 10 years to pay only the loan interest.
Once the interest-only period expires, you begin paying both the principal and interest. This can be a great option for those who are not planning to live in their home for longer than 5 to 10 years.
Many borrowers also intend to refinance their loan once the term is over. Or else, they make a sizable lump payment.
3. Adjustable Rate Mortgage (ARM)
There are many different types of adjustable rate mortgages or ARMs.
The basic and common idea is that their interest rate changes over time throughout the life of the loan. With this type of loans, you need to expect fluctuations in your interest rate as the market changes.
One of the most common ARMs is called the 5/1 loan. With this loan type, your interest rate stays the same for the first five years. The remainder of your loan, the rate is free to change and fluctuate.
Again, this loan can be an option if you plan to sell your house within 5 years or so.
4. FHA Loans
FHA Loans are loans guaranteed by the Federal Housing Administration. And they are managed by the Department of Housing and Urban Development (HUD).
These types of loans are often marketed to first-time home buyers. Yet, they’re actually available to a variety of home borrowers.
These are mortgages guaranteed by the Federal Housing Administration. What it means is that they come with built-in mortgage insurance. It’s protected against the possibility of not being able to repay the loan.
But that’s not the only draw.
The main advantage of an FHA Loan is its low down payment requirement. And it allows low-credit borrowers to access a mortgage.
You can put as little as 3.5% down on the purchase price of your home with an FHA mortgage. However, in exchange for this privilege, you’ll need to get mortgage insurance for the life of your loan.
Do you want to buy a home but don’t have an excellent credit score or a huge amount of money for a down payment? An FHA home loan mortgage might be a good way to get into homeownership.
5. VA Loans
VA loans are a no money down mortgage option mostly available to Veterans. But if you are a service member or select military spouse, you may qualify for one too.
This loan is designed to make easier for veterans of the U.S. armed forces, and sometimes their spouses, to buy homes.
Unlike other conventional loans, they don’t require a down payment. They are also guaranteed by the Department of Veteran Affairs.
They’re issued by private lenders, such as mortgage company or bank.