What Types of Home Loans Should You Consider?

Posted by Jennifer Dollar on Tuesday, March 4th, 2014 at 3:35pm

As you consider purchasing a new home, one of the first steps you should take is to consider home loans. Nearly all home buyers purchase using a mortgage. Not only does it make home buying more affordable, but it also ensures that the buyer is able to reduce risk by not putting all of his or her savings into the home purchase. However, there are many types of loans available. Choosing the right one can make a big difference in the long term.

FHA Loans

One of the options available to many people who are considered first time buyers (this is anyone without homeownership in the previous three years) is an FHA loan. This type of home loan offers flexible features, including lower down payment requirements (sometimes as low as three percent instead of the 20 percent many lenders require), and it does not have as stringent of qualifications as the typical conventional loan. Additionally, FHA loans have lower interest rates because they are backed by the government, reducing the lender's risks.

VA Loans

If you served in the military and received an honorable discharge, or you are currently serving, you may qualify for a VA loan, or a Department of Veterans Affairs loan. These are also low cost loans, with no or low down-payment requirements, lower income requirements, and lower interest rates. These loans tend to be ideal for those who are buying as a veteran because of the overall ease of qualifications.

Fixed Rate Loans

Some mortgages are classified by their interest rate. In this case, a fixed rate mortgage loan has the same interest rate throughout the lifetime of the loan. This is the most common option because it provides long term stability to the buyer. Fixed rate loans are available on FHA loans and conventional loans as well.

Adjustable Rate Loans

Unlike the fixed rate, the adjustable rate loan, or ARM, has an interest rate that can move up or down based on the trends in the marketplace. In some cases they can trend downward, helping you to save money. They tend to be risky because the monthly payment can change if rates change.

Overall, home buyers need to consider all types of home loans available to them before making an investment. Consider length, interest rates, and availability carefully before buying.

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