Top 7 Most Popular Types of Home Loans
From bridging loans to mortgage loans, there are various options available to home buyers. To choose one, compare the most popular types of home loans.
You’ve been dreaming of owning your own home for years. You’ve worked hard and saved up your down payment and are ready to join the 64% of Americans who own their own homes.
Before you can buy, though, you need to get your financing figured out. That way, when you see the perfect deal, you’re ready to swoop in and make an offer.
But you didn’t realize that there were so many types of home loans. How do you know which one is right for your situation?
Well, put on your thinking cap and let’s talk home loans!
Types of Home Loans
There are various options available for home loans. However, that doesn’t mean that you’ll qualify for all of them.
But that’s okay, not every type of home loan will be right for you anyway. Everybody has a different financial situation. The various types of home loans are to provide the right option for almost everyone.
Let’s take a look at 7 of the most popular types of home loans to help you make your decision.
There are two main overarching types of home loans–fixed-rate and adjustable-rate mortgages.
All loans fall into one of these two categories (or a weird hybrid of the two).
A fixed-rate mortgage is exactly what it sounds like. You take out a loan at a certain rate that never changes. Unless you refinance, you pay the same interest rate for the life of the loan.
It’s very predictable. Your monthly payment never changes for the life of the loan.
The adjustable-rate mortgage, or ARM, is not fixed. The rate can change with market fluctuations over the years. You take the chance that your interest rate could go up–but it could also go down.
ARMs often have the advantage of starting out at a lower interest rate. For those with less-than-desirable credit scores, this can be a way to get a lower rate. But you don’t know what the rates may end up to be later.
They often come in a hybrid form that starts out with a fixed-rate and changes to adjustable-rate later. This can be a good option if you plan to sell or refinance within a few years anyway.
3. Conventional Home Loans
A conventional home loan is one of the most difficult types of home loans to secure. The government does not back it, and thus mortgage insurance (if you have to buy it) tends to be more expensive. Plus, the qualifying requirements are rather strict, and few people can meet them.
For example, you may have to have a higher down payment and higher income. You’ll probably have to have a rather good credit score.
If you can manage to qualify for one though, you get the benefit of a low-interest fixed-rate loan. This can save you quite a bit in interest payments over the years.
4. FHA Loans
The next three loans we’ll talk about are all government-backed loans. These are the FHA, VA, and USDA loans.
The first is the Federal Housing Administration, or FHA, loan. The government guarantees this loan, thus lowering the risk for the lender.
Because of this, borrowers can secure a loan with a down payment of as little as 3.5%. They can also often get a better interest rate. The downside is that mortgage insurance will be required, which means a higher monthly payment.
5. VA Loan
The US Department of Veteran’s Affairs (VA) offers this loan to those serving in the military. In essence, it is the same as an FHA loan. The government guarantees it, and you can get a better interest rate.
The difference is that you don’t have to supply a down payment at all. You can take a loan out for 100% of the home’s value.
6. USDA Loan
This is a program offered to rural families by the US Department of Agriculture or USDA. The purpose is to help families with modest or low income who can’t qualify for a conventional loan.
They have to meet certain income requirements that vary by location. This income can’t be more than 115% of the area’s median income.
7. Bridge Loan
Bridge loans such as those offered by companies like AdMainBridging are not as well known as other types of home loans. They are, however, very useful in the right circumstances.
These loans are designed to “bridge the gap” between selling and buying. If you already own a home, you often have to sell it to have the money to buy a new one. But where do you live in the meantime?
Bridge loans take care of this problem by allowing you to buy a new home before selling your current one. They wrap both loans up into one nice, neat monthly payment. Then, when your old home sells, you can simply pay off that portion of the loan.
You do often have to meet certain requirements to qualify, and they can be stringent. Often, you’ll have to have good credit and a low debt-to-income ratio. Plus, you generally can’t take out more money than 80% of both homes’ value combined.
Regardless, the bridge loan is an excellent answer to a common problem.
Find Your Home Loan Today
Finding the right home loan isn’t quite as exciting as finding your dream home. But it’s a necessary part of the process.
The great thing is that there are so many types of home loans out there, you can find something that will work for you.
We hope the information in this article has been helpful to you. We strive to provide useful resources for people. Be sure to check out our financial services page for more helpful financial advice.
If you’re looking for more real estate advice, we have a great section on that too!