If you’re shopping for a home, it’s highly unlikely that you’ll be paying $350,000 in cash. That means you’re probably going to be looking for a loan soon, but there are just so many! With all of the options out there today you should know that not all loans are created equal, and that different situations benefit from different loans. Let’s take a look at just a few, 4 to be exact.
1. Fixed Rate Loan
This is the most common type of loan and is pretty simple to understand. It describes one fixed interest rate and monthly payment for the duration of the loan, usually 15-30 years. This loan is great for the predictable Pete’s in the crowd, because you will pay X dollars a month for Y years and changing interest rates don’t affect you in any way. This loan is great for those who plan on staying in a home for most of the loan repayment period
2. Adjustable Rate Mortgage
If staying put for 15-30 years isn’t exactly in your plans, you may want to consider an Adjustable Rate Mortgage. An ARM works by having a set time frame where your interest rate is fixed, but after that period runs out the interest rates will adjust to the current interest rate about once a year. The advantage to this is you can typically get an ARM at a lower interest rate than an FRL, which would make it beneficial to someone who didn’t want stay put after their fixed rate period is up. They are also great for those with poor credit because they can sometimes have trouble securing a good rate on an FRL.
3. Federal Housing Administration
Loans can sometimes require a down payment of 20% of the purchase price of your home and for some that isn’t doable. Enter the FHA loan. The FHA loan can be obtained for as little as a 3.5% down payment with the catch being most loans are limited to $417,000, are on a 15-30 year fixed payment schedule, and require the borrower to pay mortgage insurance which hovers around 1% of the loan amount.
4. VA Loan
If you’ve served in the military (90 days in a row during wartime, 180 days in row during peace time, or 6 years in the reserves), you have the option to apply for a Veterans Affairs loan. A VA loan is great because it has no down payment and no mortgage insurance requirements. As far as your home goes though, you do have some restrictions. It has to be your primary residence and it has to meet minimum property requirements.
Financing a house can be a tricky business in terms of knowing how to come out on top while doing it. Between all these different loans, it can get pretty frustrating and overwhelming. We hope we cleared up a few smaller things on these specific loans, and if you ever have any other questions make sure to ask us or your financing officer! There could be an even better option out there for you, and the RED Team is dedicated to helping you find it!
-Kim, Terra, and Kiley