Selecting the appropriate home loan can be confusing when there are so many to choose from. Becoming more familiar with common types of loans will make the selection process less perplexing.
There are countless types of home loans that homeowners can choose from. Selecting the appropriate home loan simply involves researching the different types, choosing the one best for you and beginning the application process. Some of the various types of loans available are listed below:
Adjustable Rate Mortgages
Adjustable rate mortgages are mortgages for homeowners who plan to reside in their homes for less than five years. The borrower must be comfortable with the risk of possible payment increases in the future, and their monthly payment may fluctuate up and down periodically. This kind of loan is beneficial for homeowners who expect their income to increase in future years.
Fixed Rate Mortgages
Fixed rate mortgages are for homeowners who plan to live in their homes for more than five years. They are the ideal loans for homeowners who prefer the stability of fixed interest payments and do not want any increase in monthly payments. If homeowners think their incomes are unlikely to increase, this may be the right loan for them.
Combination Rate Mortgages
Combination rate mortgages are for borrowers who desire the stability of a fixed interest rate for a short period of time. If homeowners have a lot of consumer debt or are looking to repair their credit by demonstrating the ability to make regular payments before refinancing for a lower interest rate, this may be the ideal loan for them. This will also help them to borrow more and get lower monthly payments than would a standard fixed rate loan.
Federal Housing Authority Loans
Federal housing authority loans come from the Federal Housing Authority (FHA) and insure loans for lenders. This allows lenders to justify offering large loans with smaller down payments.
Veteran Affairs Loans
Veteran affairs guarantees loans for qualified service members and veterans. These loans allow qualifiers to offer little or no down payment. They are, however, subject to a VA mortgage fee, usually equal to 2 percent of loan amount (sometimes waived for disabled veterans).
Assumable Mortgages
Assumable mortgages take over the existing mortgage. Most commonly, these mortgages are FHA, VA or ARM mortgages. The borrower takes on the current contract, specified payments, interest rates, and term. Equity difference is made up in down payment. These mortgages must be either qualifying or non-qualifying.
Buy-Down Mortgages
Buy down-mortgages involve paying the interest up front over a specific period of time, so payments are lower during the specified buy-down term.
Hybrid Loans
Hybrid loans are thirty year loans identical to ARM loans except that interest rates are changed once over the loan's term, generally after one, five or ten years of the term.
Choosing a Loan
The loans described above are some of the most common loans. Different companies will sometimes offer different types of loans depending on interest rates and other fluctuating factors. Shop around and compare in order to find the correct home loan before choosing one. Often lenders will offer services to help homeowners make this important decision.
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