Owning a home remains the American dream that people feel most accomplished about when they achieve it. However, as the cost of living continually rises, the price of achieving this dream grows as well. Thankfully, home loans, or mortgages, are a great solution for this issue.
As a first time buyer, all the terms within a mortgage may seem foreign to you. Obtaining a mortgage certainly isn’t the easiest thing you will ever do. However, with a little bit of the proper knowledge, you could be well on your way to owning your first home.
You need to do your research and ensure you’re in the know before you make any moves. You don’t want a mortgage that drains out all your money from your account. Here are three different types of mortgages that are available today.
The most commonly used form of mortgage today is the conventional mortgage. With this type, the government doesn’t insure the mortgage; private insurers protect it.
These kinds of mortgages are known as conforming home loans. The loans offered here are outside the federal loan limits. These types of mortgages are needed when the home is in an expensive area or where the home itself is just costly. It isn’t that easy to get a conventional mortgage today since the private insurers learned their lesson in 2008. However, when you get one, there are a lot of advantages to it. For example, if you make a down payment of 20%, you won’t have to pay PMI (private mortgage insurance).
If you enjoy stability in your life, then a fixed-rate mortgage is the one you should opt for. Here, you will have the same payment amount every month for the life-span of your loan. However, that is irrespective of the rise and fall of interest rates in the market at any moment.
On the other hand, the fixed-rate mortgage interest is quite higher than the different types of mortgages. It also is an inconvenience if you don’t plan to stay long in that house. The mortgage life is usually between 15-30 years, so this has to be a long-term commitment.
The last on this list is the government-insured mortgage. This is the alternative to all the other mortgages there are in the market today.
Three agencies of the government insure the mortgages. They include the FHA (Federal Housing Administration), VA (Department of Veteran Affairs), and lastly, the USDA (Department of Agriculture).
Federal Housing Administration
One of the most accessible mortgages for homebuyers today has got be FHA mortgages. They also cover the borrower if they fall behind on their payments, and they don’t require you to submit a substantial down payment; as little as 3.5%, and you’re good to go.
Department of Veteran Affairs
To secure this mortgage, you have to be an active member of the US military or a retired member of the military. The members who qualify for these loans don’t make a down payment of or even pay mortgage insurance.
The downside is that the pool of people who qualify are quite limited. Also, there are restrictions on the type of property one can purchase – you can’t get a property for rent.
Department of Agriculture
This loan is specially designed for low-income buyers looking to purchase in rural areas. There’s a catch; your address needs to qualify as an agricultural area for you to get this loan. There are no down payments required here, and your credit score doesn’t have to be particularity high to qualify for this loan.
Knowing which type of loan to get can be a pain. While this list doesn’t give you all the available options, the three here are where you should start. Which one of these options suits you best?