More than 40% of people take out mortgages to buy houses these days. But amazingly, a recent survey found that more than 50% of people aren’t able to properly define what a mortgage is.
If you’re thinking about buying a home soon, you need to know what a mortgage is and how one works. You’ll also need to understand the different types of mortgage loans so that you can take out the right one.
Far too often, new homeowners get so caught up in the home-buying process that they don’t devote any time to choosing the right type of mortgage. You should avoid making this mistake at all costs.
Learn more about the various types of mortgage loans below so that you can pick the one that will suit you best when buying a home.
Conventional Loans
Of all the different types of mortgage loans, conventional mortgage loans are the most common. They should be the first type of mortgage loan you think about taking out when you’re buying a home.
To qualify for a conventional mortgage, you will need to have a good credit score in most cases. You’ll also need to be able to put down a mortgage down payment that is at least 3%, though you’ll have to put down 20% to avoid paying for private mortgage insurance.
As long as you can prove that you can qualify for a conventional mortgage, it’s often going to be your best bet. It should give you access to great interest rates on a mortgage as you buy a home.
FHA Loans
One of the reasons why it can be difficult to qualify for a conventional loan is that these types of mortgage loans aren’t backed by anyone. As a result, lenders need to be careful when dishing them out.
FHA loans, on the other hand, are backed by the Federal Housing Administration. Because of this, the lenders that offer these mortgage loans can be a little more lenient when it comes to loan requirements.
If you make a modest income right now, you might be under the impression that you won’t qualify for a mortgage loan. But you could be in the running for an FHA loan.
An FHA loan will only call for you to put down a mortgage down payment of about 3.5% in most instances. But you will need to get mortgage insurance and pay for it each year until you own at least 20% of your home.
VA Loans
If you’re currently serving in the military or if you served in the military in the past, you might be able to qualify for VA loans. These types of mortgage loans are only available to past and present military members and their spouses.
VA loans are backed by the U.S. Department of Veterans Affairs. You can also choose to get one with no money down and no private mortgage insurance. Additionally, VA loans tend to have fewer fees than other types of mortgage loans do.
You can take advantage of the fact that you served your country by applying for a VA loan. This type of mortgage loan makes homeownership possible for millions of people who might not qualify for mortgages otherwise.
Adjustable Rate Loans
Most of the different types of mortgage loans that are out there are what are called fixed-rate loans. These mortgage loans have interest rates on them that aren’t ever going to change unless you decide to refinance your home loan.
Adjustable rate loans are different. These types of mortgage loans will come with an interest rate that will stay the same at first before changing after a set number of years. It might take up to 10 years for interest rates to change on these mortgage loans, but they will eventually adjust.
For this reason, adjustable-rate loans are usually only good for those who plan to live in a home for a short period of time. You’ll be rolling the dice if you decide to take out this type of mortgage loan and then stay in a home for the long haul. It could lead to your interest rate skyrocketing.
Jumbo Loans
If you’re going to buy a home that costs more than $725,000 (or more than $1 million in certain areas), you won’t be able to take out any old mortgage loan. You’ll need to try to get your hands on what’s known as a jumbo loan.
A jumbo loan is, as its name would suggest, a supersized loan that can cover the cost of a home that’s on the more expensive side. It can be difficult to qualify for a mortgage loan if you don’t make much money, but there’s a good chance you won’t be trying to buy a $725,000 house if this is the case.
Which Mortgage Loan Would Be Your Best Option?
These are just some of the types of mortgage loans that will be available to you when you’re buying a house. You should carefully consider each one before choosing the mortgage loan that seems like the best option.
You should also be choosy about which lender you decide to move forward with. Your goal should be to find a lender you can trust. Low Doc home loans are some of the best options of the bunch.
Apply For One of These Types of Mortgage Loans
By now, you should have some idea of which types of mortgage loans would be better than others. The only thing left to do will be to pick one and apply for it.
Applying for a mortgage loan can be a time-consuming process. It can also be very stressful at times. But once you’re finished, and you’re able to get approved, it’ll be one of the happiest moments of your entire life.
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