Trying to put together finances to buy your own house can be a stressful task. That is why home loans exist; they help us purchase a property at its current market value, and you can repay the borrowed amount in installments. But with so many home loans, it can get tricky to choose the right one. Homebuyers, therefore, need to be aware of the types of home loans. Read on to find out more.
Conventional home loans
Conventional loans are loans that have not been insured by the federal government. This type of home loan has higher interest rates, but the overall cost is lower than other types of mortgages/loans. Conventional loans are divided into two types: conforming and non-conforming. Conforming home loans are the ones that meet the set guideline by the federal agency, whereas non-conforming are the ones that have loan amounts within the limit set by the Federal agency. You can make use of conventional loans to buy your primary or secondary homes or even buy a property as an investment.
Jumbo home loans
Jumbo home loans are loans that are similar to non-conforming conventional loans. They are the most common type of loan that does not conform with the guidelines set by the Federal Housing Financing Agency or FHFA. For example, the loan limit set for 2021 is $548,250, except in some high-cost areas. Jumbo loans are commonly for single-family homes and are applied to homes in high-cost areas. These also require more in-depth documentation for application and approval. Additionally, these loans offer competitive interest rates as compared to other conventional loans.
Government-insured home loans
There are certain home loans offered by government bodies, like the Federal Housing Administration, The U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture. These loans do not require home buyers to pay a huge down payment, nor are the credit requirements for the application that stringent. These government-backed loans help homeowners finance their home-owning dreams when they don’t necessarily qualify for conventional loans. People who have already used this facility can also reapply for the same loans and possibly be approved.
Fixed-rate home loans
If you are someone who would like to have a fixed monthly mortgage payment, you might be in favor of fixed-rate home loans. These loans are usually available for homebuyers in terms of 15, 20, or 30 years. It is especially beneficial for homebuyers who are planning to live in the same house for more than five years. With this type of loan, people have the possibility of precisely planning their finances and saving accordingly. The downside of fixed-rate home loans is that you may have to wait for a longer time to build equity and pay more interest, considering that the term is longer.
Adjustable-rate home loans
Adjustable-rate home loans or mortgages do not offer the stability offered by fixed-rate loans. They have interest rates that keep fluctuating depending on the condition of the market. In various cases, your loan will initially have fixed interest rates for a few years before it changes into a variable interest loan. For your own safety, look for an adjustable-rate mortgage that has a capping rate mentioned for when the loan resets. This will give you an idea of the maximum amount you will have to pay and save you from future financial peril.