Choosing the best mortgage loan to finance your housing plan is a significant step to obtain your dream home. If you think now is the right time to get yourself a house, you should start planning and defining your goals, such as your ideal location, your budget, the time you intend on moving, and more.
Whether you want to purchase a home in the city, or prefer to buy a property in the rural areas, there’s a particular financing program that can help you achieve that. To determine which housing loan is right for you, take a cue from the types of mortgages discussed below.
If you are planning to buy a house, an Adjustable Rate Mortgage or ARM might be your best option. This type of housing loan has a fluctuating interest rate and comes with rate caps that sets how much the interest rate can rise or how highly the payments can change.
An adjustable-rate mortgage may be your smart choice if you are planning to pay off your housing loan in full within a specific duration or if it won’t be critical for your financial situation when the rate fluctuates. On top of that, ARM can be appealing because it starts with low-interest rates but can be reset depending on the type of loan and its rate index.
Here are some of the significant advantages of Adjustable-Rate Mortgages:
- Your mortgage interest rate will decrease when the interest rates drop.
- You might qualify for a larger house with high-end features since ARM generally features a lower introductory rate.
- ARMs also feature flexible payments and enable you to pay off your loan more slowly or quickly.
A fixed-rate mortgage is one of the most popular options if you want to buy a property. This housing loan has a set interest rate for the entire duration. In other words, you will have a regular monthly payment and will stay the same throughout the repayment term. Furthermore, a fixed-rate mortgage generally comes in 15 years, 20 years, and even up to 30 years term.
To determine whether or not a fixed-rate mortgage is right for you, here are some of its major advantages that might help you big time:
- Since you have a fixed interest rate and a predictable monthly payment, you can have a precise budget for your expenses every month.
- If interest rates rise, you won’t be affected, and above all, you’ll still benefit from the low-interest rate that you locked in from the beginning of your loan.
- It’s easier to compare fixed-rate mortgages when it comes to shopping for mortgages. In fact, you just need to compare closing costs and rates to determine which offer is better.
Government-insured or government-backed mortgages are loans that are guaranteed by government entities. In other words, if the borrower defaults on the home loan, the government will compensate the lender for any losses. With this guarantee, these types of mortgages are the ideal solution for those who have low-income and first time home buyers.
Here are some of the benefits you will get out of government-insured mortgages:
- Credit requirements are more relaxed.
- You don’t have to pay a large amount of down payment to buy the house.
- If you don’t qualify for a conventional loan, government-insured mortgages are your helping hand.
- These mortgages are open to first-time and repeat home buyers.
Moreover, there are three types of government-insured mortgage loans available in the United States. These programs are:
- The Department of Veteran Affairs or VA. This housing loan program is for the eligible military members and veterans, and in some instances, their spouses. On top of that, VA loans offer 100% financing, which means borrowers can purchase a house without any downpayment. Since the federal government guarantees this type of mortgage, the VA will compensate the lender for any losses due to unpaid loans.
- The Federal Housing Administration or FHA. This program is the most common type of government-insured mortgages, and it is basically managed by the Department of Housing and Urban Development (HUD). Unlike VA, which offers 100% financing, FHA loans allow borrowers to make a downpayment with as low as 3.5% of the house price. Aside from that, it is also easier to qualify for an FHA loan compared to a regular or conventional loan.
- The U. S. Department of Agriculture or USDA. This type of government-insured mortgage offers home financing in low-population areas or rural places to individuals who meet particular income requirements. With that said, the borrower should have a moderate income up to but not higher than 115% of the AMI or area median income.
When it comes to buying yourself a house, the home buyer tips from professionals or even from other homeowners will give you ideas on the dos and don’ts of purchasing a property.
Along with these tips, the types of mortgages discussed above may also help you get through the financing side of buying a new home. Ultimately, you should choose the housing loan that is suitable for you and the one that you can afford in addition to your monthly bills and necessary expenses.