Which mortgage is right for you? Here are some options.
When you’re ready to buy a new home, it’s natural to want to focus on finding the ideal place to hang your hat. But before you start attending open houses and walking through potential properties, you’ll want to give some thought to the type of mortgage that’s right for you.
Selecting the right mortgage can save you money
Just as no house is the same as the next one, no buyer is the same as the next. So it stands to reason that there is no one-size-fits-all mortgage. As a potential buyer, it’s important to understand the different options you should consider, so you can determine which loan type is right for you and your circumstances. It’s no small matter. In the end, choosing the right mortgage can save you a substantial amount of money—money you could invest into making your home perfect for your family’s needs. More, if the dream of a home seems out of reach, there may be financing options that can help you make that dream come true. Let’s take a closer look.
TYPES OF BUYERS AND THE COMMON TYPES OF HOME LOANS RIGHT FOR THEM
Fixed-rate loan: Great for buyers who plan to stick around and like predictability
Fixed-rate loans are often called conventional mortgages. They are the most common type of loan, and they offer a single interest rate for the life of the loan. Buyers can choose a loan term—commonly 15 or 30 years. A down payment of at least 10 percent and good credit are usually required for buyers to qualify.
Adjustable-rate mortgage (ARM): Good for buyers with poor credit and those who plan to sell or refinance before the rate adjusts
Adjustable-rate mortgages start at a lower rate than a fixed-rate loan, which typically changes in the years to follow, in response to current interest rates. Sometimes those rates adjust faster and higher than buyers expect, which can lead to financial difficulties for some buyers.
FHA loan: Good for buyers with little down payment
Buyers who don’t have much for a down payment, and can’t qualify for a typical loan for that reason, may be eligible for a Federal Housing Administration loan. With an FHA loan, buyers can make a down payment of as little is 3.5 percent. Rates are usually fixed at 15 or 30-year terms, and buyers must purchase mortgage insurance.
VA loan: For buyers who have served in the military
Buyers who have served our country may qualify for a Veterans Affairs home loan. A VA loan allows veterans to purchase a home with no money down and no mortgage insurance. There are parameters for length and type of service that must be met, and the VA has requirements about the kind of home that can be purchased.
USDA loan: Ideal for rural families of limited financial means
For families who live in rural areas but have limited means to achieve homeownership, USDA loans provide an alternative. Buyers who qualify must purchase mortgage insurance, but in return the government finances the home so no down payment is required and interest rates are offered at a discount. It’s important to note that debt load limits apply for buyers who wish to qualify for this loan.
Bridge loan: Buyers with great credit and financial means
Bridge loans are also known as gap loans, and they are an option for buyers who have not yet sold their current home. If your credit is good and you have a low debt-to-income ratio, and you only need to finance a portion of the two homes’ values, you may be eligible. For buyers who qualify, their mortgage lender will combine the current and new mortgage payments into one. Once the current home is sold, the mortgage is paid and the loan is refinanced.
Find the home loan that is right for you
When it’s time to buy a home, finding the right home loan option for you is an important step in the process and can make all the difference. Do your research, study your options and be sure to compare terms and rates. When it comes time to pay your mortgage, you’ll be glad you did.