Are you thinking about buying a home? Not sure what types of home loans you should be considering?
If you want to purchase a home, you need to make sure that you understand the financing options that are out there. There are a variety of different mortgages you can get as a first-time home buyer and they all come with different pros and cons.
Here are the different types of home loans that you can get today.
- Conventional Loans
A conventional loan is one of the most common loan options available. Conventional mortgages can be both conforming and non-conforming and you’ll need to meet certain requirements in order to qualify.
You’ll usually need at least a 620 FICO score and will need to have a good debt-to-income (DTI) ratio. However, if you qualify, the borrowing costs are usually smaller than with other loan types.
- Jumbo Loans
A jumbo loan is another type of loan to consider if you’re buying a home. Jumbo loans are specifically meant for more expensive homes and tend to be common in expensive areas such as Los Angeles and New York City.
Qualification is even harder than with a conventional loan, so expect that you’ll need to have a FICO score of over 700, a strong DTI ratio, and other proof that you’re in good financial standing.
- Fixed-Rate Mortgages
A fixed-rate mortgage is a type of mortgage in which the same rate of interest will be maintained through the life of a loan. You’ll always have the same monthly payment and mortgages will usually last for 15 or 30 years.
A fixed-rate mortgage can be very helpful because it allows you to track your budget very easily. However, interest rates can be higher than with adjustable-rate mortgages.
Remember that it’s possible to pay off a mortgage early. You may want to check out some pay off mortgage early tips if you want to learn how to do it.
- Adjustable-Rate Mortgages
Unlike fixed-rate mortgages, adjustable-rate mortgages (ARMs) have interest rates that fluctuate and change based on the market. However, some will stay at a fixed rate for a few years and start adjusting later on.
While the changing monthly payments of these mortgages can cause problems and may become unaffordable, ARMs tend to offer lower fixed rates in the first few years. It’s possible to save a good bit of money on interest rates when compared to other types of loans.
- Government-Insured Loans
The government offers several different loan types and these can often be very good options if you qualify. Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and U.S. Department of Veterans Affairs (VA) loans are all good options to consider.
All of these loan types can be helpful if you don’t qualify for a conventional loan. You can get these loans with lower credit scores and with lower down payments.
There are negatives to choosing these loans, however, and there are a lot of limits to them. However, they’re well worth considering if you’re thinking about buying a home.
Understanding the Main Types of Home Loans
If you’re thinking about checking to see what’s on the real estate market, be sure that you know what the different types of home loans are. Each of the loan types above could be a good option, but you’ll need to consider your specific needs when making your choice.
Hoping to find more helpful home purchasing tips? Browse our blog now to find more tips for becoming a smart homeowner.