Have you decided to buy a new home, but don’t know which loan to apply for? A home mortgage loan could be what you are looking for. It is a type of loan that is secured against a property for the repayment of the loan. There are different types available in it to choose from, and you should find the one that will best suit your needs. Generally, they are categorized into two main types: conventional and government home loans.
Conventional Home Loans
They are given to buyers by mortgage companies, lenders, and banks. Their rates of interest depend upon the market trend. They are of following types:
Fixed-rate Mortgage Types: As the name suggests, in this type of loan, the rate of interest does not change. The mortgage payment to be made on a monthly basis remains fixed for the predetermined period, and does not vary with the market rate. Hence, if you signed up for it at a low rate of interest, it remains so even if the market interest rates increase during that period. A fixed-rate mortgage loan can last anywhere between 10 – 40 years. If you are a first-time home buyer, then this could be an ideal option for you. However, if you sign up for it at the time, when the interest rates in the market are high, this could be a disadvantage. It offers less risk and more stability.
Adjustable-rate Mortgage (ARM): It offers a fixed rate of interest initially, and later moves on to adjustable rates, depending upon the interest rates that the markets experience. It usually starts off with a low rate of interest, compared to that of a fixed-rate type in the introduction period. However, the rate of interest during the adjustable period is uncertain, which is a disadvantage. This being an unstable type of loan can involve a lot of risks. Those looking for short-term deals can benefit from it.
Balloon Loan: It is offered on a fixed-rate basis for a short-term, usually around 7 – 10 years, at the end of which, the amount has to be paid in a lump sum. They are based on an amortization schedule of 30 years. The rate of interest for the term is as low as that of the adjustable-rate mortgage type. It is easy to qualify for it; so, people with low or poor credits find it very appealing, as it gives them the time to reorder their credits. Payment of the lump sum amount is a downside. At the end of the term, you are left with two options: either pay the amount, or try qualifying for another loan.
Bridge Loan: It can be availed, if you have zeroed down on the new home you want to buy, but haven’t sold your current one yet. The bank or the mortgage firm uses your current home as security against the loan being offered.
Home Equity Type: It allows the borrower to draw funds or cash from the equity in the home or a property. It can be either fixed or adjustable.
Government Home Loans
These are guaranteed insured loans, targeting specific groups of people who are looking to own a home. They are channelized through private organizations, but rely on the Government for sponsorship.
Federal Housing Authority (FHA): This is a program initiated by the Government-run FHA. The purpose of this program was to help more people qualify for housing mortgage loans after the Great Depression. Their interest rates are lower than any of the conventional types, and the down payments are lower, too. They are easy to qualify for. In case you intend to sell your home before the term ends, the person buying your home can take over that loan.
Veteran Affairs (VA): It is offered specifically to government employees, service men, and service women by the US Department of Veteran Affairs. They are offered smaller down payments and better terms on fixed-rate and adjustable loans. They are also guaranteed, which means that in case of default on payments by the borrower, the private lender shall be repaid.
Rural Housing Services (RHS) Loan Program: It is offered by the US Department of Agriculture. Loans for rural residents are guaranteed by the Government without any down payment.
Availing a home loan is an important aspect of home buying. Hopefully this information would help you choose the loan you are looking for, which would mean taking a step further in purchasing your dream home.