Are you in the process of buying a house? Have you found out about your home loan eligibility yet? Do you know what types of home loans are available to you?
If you’re looking at houses and you haven’t looked into procuring a mortgage yet, hit the brakes. It’s important to get preapproved for a loan so you know how much money you can afford to spend on your new home. Just as importantly, you need to learn about your home financing options.
We’re here to get the ball rolling. Keep reading for some of the most common home loans.
Conventional Home Loans
The most common and ideal home loans are conventional loans. These are typically fixed-rate mortgages with low-interest rates.
To get approved for a conventional home loan, you need to have a credit score of 620 or higher. You’ll also need to come up with a minimum down payment equal to 3% of the home’s value. For example, if the home you want is $275,000, you’ll need to put $8,250 down.
If you want to avoid paying for mortgage insurance, you’ll need to put 20% down. Using the example above, that would be $55,000.
If you have a low income, FHA loans can provide the financial assistance you need. They are government-backed loans for low-income families.
However, you have more home financing options if an FHA loan isn’t right for you. USDA loans are government-backed loans reserved for individuals and families whose income levels fall at or below the area’s low-income level.
These loans can be acquired for homes under 2,000 square feet with values under the area’s average. Applicants are more likely to get a USDA loan if their current living situation is dangerous or unsanitary.
Lastly, applicants do not need to provide a down payment for homes financed through USDA loans. However, zero to little money down will require paying for mortgage insurance.
Fixed-Rate Vs Adjustable-Rate Loans
Finally, first-time homebuyers should educate themselves on the different home financing options regarding fixed vs adjustable-rate mortgages. As their name suggests, fixed-rate loans maintain the same interest rate throughout the life of the loan. This makes monthly payments more predictable.
Conversely, adjustable-rate loans can be easier to obtain. They grant the borrower three or more years at a low-interest rate. After that, the rate can go up or down depending on the economy and current real estate market.
In either case, after a few years, you can always refinance under a different type of loan if you don’t like your fixed-rate interest or want to get out of your adjustable-rate loan.
Are You Familiar With Your Home Financing Options?
Buying a home is a big financial commitment. It’s not a decision you should make lightly, particularly when looking at your home financing options. We hope our guide provides you with the information you need to make the best choice for your new house.
And if you’re looking for more home buying tips or financial advice, look no further. Before you go, read through some of our other articles to find more helpful information.