Purchasing a home is more challenging than ever, but that shouldn’t deter you from looking into the financing options available for your unique situation. Homebuyers can leverage many loan options when searching for a new home.
This post will cover 8 of the most common types of home loans you may consider before beginning your new home search. From conventional mortgage loans that allow you to pay over the course of 15 or 30 years to government-backed VA and USDA loans, there is a home loan that fits every homebuyer’s need.
A 30-year fixed-rate mortgage is one of the most common home loans available to homebuyers. This conventional home loan offers a fixed interest rate for the 30-year duration of the loan. By setting the interest rate for the duration of the loan, you pay a set rate for both your monthly mortgage payment and your interest rate.
Knowing the exact amount you will pay every month offers consistency and stability to your monthly expenses. You won’t have to worry about a changing economy or fluctuating interest rates. Additionally, you may have an easier time approaching mortgage lenders and qualifying for a 30-year fixed-rate mortgage as it’s one of the most common home loans available.
A 15-year fixed-rate mortgage is another common home loan you may consider if you’re interested in lower interest payments. This conventional loan shares the same benefits as the 30-year fixed-rate mortgage. However, you should be aware that by decreasing the loan duration, you increase your monthly mortgage payment.
This type of home loan is often used by homebuyers looking to refinance their homes. If you’re not looking to refinance, but you want to pay off the loan quickly and build equity in a shorter period of time, then a 15-year fixed-rate mortgage can be a good home loan option for you.
Adjustable-rate mortgages (ARMs) can be a good home loan choice for homebuyers. This type of home loan offers an initial fixed rate that adjusts over the duration of the loan. ARMs home loans can be set up in several ways by your lender to suit your financial situation. You may opt for a 5, 7, or 10-year fixed-rate mortgage loan with an interest rate adjusted bi-annually or annually.
For example, you may decide on a mortgage that has a fixed rate for the first five years. In this situation, the interest rate would adjust every six months or 12 months after the first five years. This type of home loan may be a great option for homebuyers looking to pay less money upfront or for those facing high-interest rates and anticipating those interest rates to lower in the next few years.
Interest-only mortgage loans can be a great home loan option for homebuyers with significant cash flow and those who may not want to stay in a home long-term. This type of home loan allows you to pay only the mortgage interest for the first 5 or 10 years of the loan.
Interest-only loans can be highly customized to your preferences, including choosing a fixed-rate or adjustable-rate loan. Keep in mind these types of home loans require a borrower to demonstrate they have adequate financial assets before they can be approved.
Jumbo mortgage loans are the most common type of non-conforming loan. This type of home loan does not conform to the loan limits set by the Federal Housing Finance Agency (FHFA). The FHFA sets annual baseline loan limits for single-family homes determined by the annual Housing Price Index Report.
If you’re interested in applying for a jumbo home loan, check out this year’s conforming loan limit
Because jumbo loans are not government-backed and do not conform to federal loan limits, eligibility requirements are often more rigid. Before asking your lender about this type of home loan, ensure you have a great credit score, a substantial down payment, and a lower debt-to-income ratio.
Federal Housing Administration (FHA) loans are some of the most sought-after loans for first-time or lower-income homebuyers. The government-backed loans offer looser income, credit, and down payment requirements that allow homebuyers access to secure and affordable home loans.
Unlike other government-backed loans, FHA loans do not require homebuyers to be active military personnel or require the home to be located in rural areas. FHA home loans are a great option for new home buyers and those less likely to have substantial savings for a down payment. Private mortgage firms, banks, and credit unions offer FHA loans and are easily accessible to most home buyers.
Home loans offered by the Department of Veterans Affairs, commonly known as VA loans, are a type of home loan offered exclusively to veterans and active military personnel. Active-duty servicemembers, eligible spouses of veterans, and World War II allied veterans are eligible to apply for VA-backed home loans with less strict credit, income, and down payment requirements.
Before asking your lender if you’re eligible for a VA home loan, ensure you have prepared all required documentation. In addition to the typical documents like income and credit, you want to prepare proof of military service, the type of home you’re interested in purchasing, and evidence of adequate assets to pay the lending fee.
The Department of Agriculture offers home loans to low or moderate-income homebuyers interested in purchasing a home in specific suburban or rural areas. The agency backs this type of home loan through its Rural Development Guaranteed Housing Development program.
You’ll be pleased to know there are less strict income, credit, and down payment requirements to satisfy if you are interested in purchasing a home in an eligible rural or suburban area.
If any of these eight home loans interest you, contact us today. We review your income, credit history, and down payment options to guide you through the homebuying process. Lendevity is committed to offering our customers the best deal, terms, and home buying experience.