Common Types of Home Loans
There are many different types of home loans. Let’s take a look below at 5 common loans: Conventional, ARM, FHA, VA, and USDA.
1. Conventional Loan or Fixed Rate Mortgage
Do you plan to stay in your home for a good chunk of the life of your loan? This Fixed-rate loan is consistent for the life of the loan. This means that the loan will have a single interest rate and the same monthly payment over the term of the loan. The life of a fixed-rate mortgage can vary from person to person. This standard mortgage is available in 10, 15, 20, 30, and 40-year terms. Typically homeowners will purchase a 15- or 30-year mortgage term when buying a Conventional or Fixed-rate mortgage.
2. ARM – Adjustable Rate Mortgage
Do you have low credit or are you worried that your credit may not be competitive enough to find a good interest rate on a Conventional loan? The Adjustable Rate Mortgage (ARM) may be right for you. Since there are many different ARMs, we will stick to the basics.
With an ARM, you will pay the same interest rate (fixed-rate) for a defined period of time. After that, the rate can adjust to correspond with current interest rates. For example, you have an ARM rate that will stay the same for the first 5 years of the loan. After that 5 years is up, the interest rates can rise and fall depending on current market interest rates. Even if you have good credit, the Adjustable Rate Mortgage might be a great option if you plan to move or sell your home before that fixed-rate period is up.
3. FHA Loan – Federal Housing Administration Loan
If you do not have savings for a down payment, you may be a good fit for a FHA loan. These loans are government-backed and guaranteed by the Federal Housing Administration. The down payments are typically smaller with a FHA loan, requiring as little as 3.5% down. FHA loans are fixed-rate mortgages and they come with built-in mortgage insurance to protect against repayment issues. Unlike a conventional loan with various term lengths, you’ll have to decide between a 15-year or 30-year mortgage term.
4. VA Loan – Veterans Affairs Loan
This loan is exactly what it sounds like. If you have served in the United States (US) military, a VA Loan may bring you greater benefits than a conventional loan. If you qualify, you will have no down payment and no mortgage insurance requirements. Want to know if you qualify? Click Here
Do you live in a rural area or are you planning on moving to one? The USDA loan may be a good fit for you. This is a government-backed loan and will require mortgage insurance. For this loan, the government finances 100% of the home price, meaning that no down payment is necessary and the interest rates will be discounted. With the USDA loan, you’ll have to make sure your debt load does not exceed your income by more than 41%. This loan is a great option for those rural home lovers that want affordable mortgage payments.
There are many more available loans out there such as: interest-only mortgages, and more exotic types like combo or piggyback, balloon, and jumbo loans. We will cover those at a later date.
Now that we have covered 5 common home loan types… How do you know which loan is best for you?
Want to learn more about loan types? Click Here.
Find out what loan amount you can afford here.
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Ready for a pre-approval? Click here.