Where you live, how long you plan to stay put, and other variables can make certain home loans better suited to your circumstances, and choosing wisely could save you a bundle on your down payment, fees, and interest.
To learn about all your options, check out these common types of home loans and whom they're suited for, so you can make the right choice.
The most common type of loan, a fixed-rate loan prescribes single interest rate and monthly payment for the life of the loan, which is typically 15 or 30 years.
The most common type of loan, a fixed-rate loan prescribes asingle interest rateand monthly paymentfor the life of the loan, which is typically 15 or 30 years.
Homeowners who crave predictability and aren't going anywhere soon. You payX amount forY yearsand thats the end. The rise and fall of interest rates (like the nationwide increase that followed theFeds action inDecember) won't change the terms of your loan,so you'll always know what to expect. That said, theyre best for people who plan to stay in their home for at least a good chunk of the life of their loan; if you think youll move fairly soon, you may want to consider the next option.
ARM loans offer interest rates typically lower than you'd get with a fixed-rateloaner a period of time such as five or 10 years. But after that, yourinterest rates (and payments) will adjust, typically once a year, roughly corresponding to current interest rates. So if interest rates shoot up, so do your monthly payments; if they plummet, youll pay less.
Home buyers with lower credit scores. Sincepeople with poor credit typicallycant get good rates on fixed-rate loans, an ARM can nudgethose interest rates down enough to put homeownership within easier reach. These loans are also great for people who plan to move and sell their home before their fixed-rate period is up and their rates start vacillating.
While typical loans require a down payment of 20% of the purchase price of your home, witha Federal Housing Administration loan, you canput down as little as 3.5%.
Home buyers with meager savings for a down payment. These loans come with several caveats. First, most loans are limited to $417,000 anddont providemuch flexibility:Ratesare typicallyfixed, with either 15- or 30-year terms. Buyers are also required to paymortgage insuranceeitherupfront or over the life of the loan, which hovers around 1% of the cost of your loan.
If youve served in the United States military, a Veterans Affairsloan can be an excellent alternative to a traditional mortgage.If you qualify, you can score a sweet home with no money down and no mortgage insurance requirements.
Veterans who've served90 days consecutively during wartime, 180 during peacetime, or six years in the reserves.That said, the VA has strict requirements on the type of home you can purchase: It must be your primary residence, and it must meet minimum property requirements (that is, no fixer-uppers allowed).
USDA Rural Development loans are designed for families in rural areas.The government finances 100% of the home price in other words, no down payment necessary and offers discounted interest rates to boot.
Families in rural areas who are struggling financially. These loans are designed to put homeownership in their grasp.The catch? Yourdebt load cannotexceed yourincome by more than 41%,and, like the FHA loan, you will be required to purchase mortgage insurance.
Also known as a gap loan or repeat financing, a bridge loan is an excellent option if youre purchasing a home before selling your previous residence. Lenders will wrap your current and new mortgage into one payment; once your home is sold, you pay off that mortgage and refinance.
Homeowners with excellent credit and a low debt-to-income ratio, and who don't need to finance more than 80% of the two homes combined value. Meet those requirements, and this can be a simple way of transitioning between two houses without having a melt down financially or emotionally in the process.