If you’ve decided it’s time to buy a house, then it’s also time to get educated about your options.
Homebuyers in the United States have lots of different choices, but before you make a decision you need to understand the different loan types – and what they mean for your financial future.
Here’s a brief description of the different types of home loans to help you make an educated decision about what’s right for you:
Fixed-Rate Mortgage
This is the most common type of mortgage. It is also the simplest to understand. With this type of loan, you get an interest rate that does not change and you make regular, stable monthly payments over a period of time until you pay off the balance in full. Fixed-rate mortgages are generally taken out for 15 or 30 years.*
Who Should Opt for It??
Homeowners who want a regular, predictable payment amount will want to choose this option. It is also the most cost-effective choice for people who plan to stay in their homes for a long period of time.
Adjustable-Rate Mortgage
The adjustable-rate mortgage (ARM loan) offers a lower interest rate in the beginning – for anywhere between 1-5 years. However, after that, the interest rates change (adjust) based on the country’s economy. This means that the payment amount can increase significantly after the initial period.
Who Should Opt for an ARM Loan?
This can be a good option for homeowners who have low credit scores as it is easier to qualify for. They can also help individuals qualify for a higher-priced home than they would have qualified for under the requirements for a fixed rate mortgage.
Adjustable rate mortgages also are a good option for people who are certain they will be in their homes for a short period of time – meaning they plan to sell before the rate adjusts.
FHA Loans
The Federal Housing Administration Loan is insured by the US government. It requires a down payment of around 3.5% of the value of the home.
Who Should Opt for an FHA Loan?
First-time home buyers might want to opt for the FHA loan program if they can easily pay the down payment. It’s a good option for low-income individuals or those with poor credit as FICO scores are less stringent.
However, there’s one caveat: due to the increased risk of default, you will be required to pay mortgage insurance on this loan, which increases your costs associated with this loan.
USDA Loan
This program is created for people looking to buy in rural areas. It requires no down payment and offers reduced interest rates.
Who Should Opt for a USDA Loan?
This loan program is great for families wanting to purchase a home outside of urban areas. The program requires that a borrower’s debt does not exceed their income by 41 percent. Buyers are also required to have mortgage insurance.
TILA Mortgage is an exceptional team of mortgage loan advisors committed to helping buyers throughout every step of the home loan financing process. We help homebuyers in Tacoma, Seattle, Everett, Bellevue, and all throughout Washington State. Contact us to learn more and see how we can help you, too!