We all want to own homes and gain stability as well as escape all other undesirable aspects that come with renting. However, let’s face it; homes do not come cheap, and that’s why many people prefer to work with home loans that they can repay over time.
We’re going to look at the home loan options available to aspiring homeowners and their requirements. That way, you can weigh them and decide which one can work best for you.
The fixed-rate loan is the most common conventional loan. This loan is characterized by:
- Single interest rate
- Monthly payment
You make these two payments throughout the loan life, which is usually 15 to 30 years. A jumbo loan is an excellent example of a fixed-rate loan. You get to know the amount that will be deducted from your salary.
This type of conventional loan is suitable for people who plan to live in a home for quite some time. It requires a down payment, and the fluctuation of the interest rates does not affect your payment. You will be paying X amount for the specified number of years, after which you will complete the loan.
Unlike fixed-rate mortgages, this loan offers lower interest rates for a specific duration, for example, 5 or 10 years instead of a loan’s life. After this period, your interest rates and (monthly payments) will fluctuate according to the current rates. Simply put, if the rates shoot, your monthly payment also rises. If they fall, your payment decreases.
This loan is appropriate for those who have a low credit score since they cannot secure reasonable rates from fixed-rate mortgages. The Adjustable-rate loan also lowers those interest rates to make homeownership reachable. If you plan to move before a fixed-rate period, this loan matches your needs.
A USDA loan is a government-sponsored mortgage for families in rural areas. The government funds 100% of your home price if you are eligible. So, you don’t need a down payment, and you also enjoy reduced mortgage interest rates.
People who have financial difficulties in rural areas can access this home loan. They get to own a home at a lower mortgage payment. However, the loan cannot surpass 41% of your income. Similar to FHA, this loan demands that you purchase mortgage insurance.
An FHA loan is different from other home loans since it requires a low down payment (a minimum of 3.5%). You are not obligated to the usual 20% down payment because the government funds this loan. Those with minimum savings are fit for this home loan.
While the FHA brings this great offer, it also has its demands. They include:
- Loan amounts do not exceed $417,000
- They are less flexible.
- Mortgage insurance
When you obtain this loan, you have to pay mortgage insurance either prior to or in the life of the loan. FHA is a fixed-rate mortgage that can have 15 or 30 years terms.
The journey to owning a home can be overwhelming if you don’t have the right financial plan. Are you a Native American or Alaskan? You can take advantage of the section 184 loan and start your journey to stability. This loan option is only available to Native Americans and Alaskan tribes and comes with various benefits such as reduced interest rates, low down payments, and reduced insurance rates.