Purchasing a new home imminently implies researching for financing solutions. Considering that there is no such thing as a one-size-fits-all type of loan, it makes sense to get acquainted with different types of loans before making a decision. This article introduces you to the main options you can choose from, in this respect; so, keep on reading!
Without a doubt, this is the most commonly met type of loan. It features a fixed interest rate, and a designated monthly payment that remains unaltered for the entire lifespan of the loan, which may range from 20 to 50 years.
This type of loan is tailored for homeowners who want dependability. The rise and drops in interest rates won’t affect you in any way, which means you won’t be taken by surprise. If, however, you plan on moving in the foreseeable future, you should choose something else.
As a general rule, conventional loans require a down payment of 20 percent of the whole purchase price of the home. Nonetheless, the good thing is that, with a Federal Housing Administration Loan, you can offer a down payment of as little as 3.5 percent. If you don’t have sufficient savings for a down payment, this type of loan could be the right solution for you.
Bear in mind, though, that these loans aren’t quite flexible; on the opposite, the rates are fixed, not to mention that you’ll have to pay mortgage insurance, which accounts for approximately 1 percent of the cost of the loan.
For the most part, adjustable rate mortgage loans have lower interest rates than fixed-rate mortgages. Concurrently, for a given timeframe, the interest rate remains fixed, typically for five or ten years, depending on the loan terms. However, after that timeframe expires, the interest rates will drop or increase, being influenced by the current interest rates.
Such a loan is a good alternative if you plan on moving out after the fixed rate timeframe passes, and you intend to sell the house afterward. Additionally, people with lower credit score will find it easier to get approved for these loans.
Also referred to as a gap loan, a bridging loan is a go-to solution if you wish to purchase the new property before you manage to sell your previous residence. The lender will balance your current and new mortgage into one large repayment. And, as soon as you manage to sell your house, you’ll pay off that mortgage. This type of financing is a convenient way of transitioning between two houses without feeling overly stressed and financially burdened.
Combo Mortgage Loan
This form of financing embodies two separate loans: a first mortgage, and a second mortgage. These could have adjustable or fixed interest rates or a combination of the two. Borrowers may choose this option in order to avoid paying for private mortgage insurance, and they don’t have the financial means to provide 20 percent of the value of the home in the form of down payment.
These are the primary options you can choose from when you’re in the market for financing to get a house! Analyze each option attentively to ensure that the loan you pick meets your needs!