Purchasing a home? Learn more about the variety of loan options available in the market so you can determine which financing option suits your needs best.
Here’s a quick run-down on the three basic types of mortgage loans homebuyers can choose from that are offered by various banks but are not guaranteed by the federal government:
- Fixed-rate mortgage – As the name suggests, the loan’s interest rate remains the same during the loan’s duration. Commonly acquired over a 30-year period as it entails lower rates. Payment terms come at a fixed amount to be paid monthly. Shorter and longer terms are available as well.
- Adjustable-rate mortgage – Unlike a fixed-interest mortgage, an adjustable-rate mortgage’s interest rate changes every year based on various factors.
- Hybrid mortgages – this type of mortgage is a combination of a fixed-rate mortgage and an adjustable-rate mortgage. A fixed rate may be adhered to – typically for a 5-10 year period – and then change to an adjustable rate mortgage format for the remainder of the term.
If you are purchasing a home for the first time, you may opt to apply for a loan offered by the Federal Housing Administration (FHA), which have comparatively lower down payment rates and are easier to qualify for compared to loans offered by private institutions. In fact the allowed down payment rates can be as low as 3%.
Another type of loan that is sponsored by a government agency that you may consider is from the United States Department of Veterans Affairs. In this loan, the VA is not a direct lender – it partially guarantees the loans provided by a private lender under certain guidelines and restrictions set by the VA. However, a request for eligibility is required from interested lenders before they can apply. Commonly referred to as a VA loan, this loan is extremely beneficial for veterans as well as active-duty military who have been in service for more than six months, and their spouses.