Which Home Loan is Best for You?
There are a host of home loans out there for you to choose from when buying a new house. It can be a tricky decision for first-timers — or perhaps you just want to see which option best fits you.
We’re going to break down each major type of home loan, so you can narrow down the best choice for your family.
Fixed-rate loans are the most common type of home loan. They have a single interest rate. You would have to pay monthly over a long period of time — typically 15 or 30 years. These loans are simple in that you pay a set amount each month. The fickle nature of interest rates won’t affect the terms of fixed-rate loans. These loans are a good choice for people who plan to settle down for a while.
These loans often have lower interest rates than fixed-rate loans for a set period of time (think five or 10 years). But, then interest rates adjust yearly to a percentage close to whatever the current federal interest rate is at that time. These loans are a solid option for low-income homebuyers, because you can lock in an interest rate that is lower than what you would find in a fixed-rate loan.
Unlike other loans that require a 20% down payment, a loan from the Federal Housing Administration can require as little as 3.5% down. If you don’t have a lot of cash on hand for a down payment, this is a good avenue to take. Although, most FHA loans are limited to $417,000 and interest rates are usually fixed. You would also be required to pay for mortgage insurance, which can be pricey if you’re tight on moneyR
These loans are for veterans of the U.S. military. Veterans Affairs loans have several perks. They require no money down and don’t require mortgage insurance. But, there are strict requirements as far as what type of home you can buy. It has to be your primary residence and can’t be a fixer-upper. To qualify you would have had to serve 90 consecutive days during wartime, 180 consecutive days during peacetime, or six years in the reserves.R
If you happen to want a home out in the sticks, USDA loans are available. They are specifically meant for people buying houses in rural areas. You won’t need a down payment and you can get a discounted interest rate as well. Sounds great, but there is a catch. You cannot have a total debt that is 41% higher than your income. USDA loans also require mortgage insurance.
Last but not least — bridge loans. These are also referred to as “repeat financing”. If you plan on selling your home after buying your new home, this is a great choice. Your lenders will actually lump your current and new mortgage into one payment. When you do end up selling your old home, you pay off that mortgage and refinance. Bridge loans are an option for people with excellent credit scores. If that doesn’t describe you, try scrolling back up.
We hope this explanation helps on your road to homebuying.
Keep the Good Guys in mind when you sign those closing papers. We’ll get you into your new home quickly, efficiently, and respectfully.