Looking to buy a home? Here are 3 most common types of home loans for first-timers
If you are fed up with the landlord constantly waylaying you in the hallway to ask for rent, it is high time you thought about buying a property that you can call your own.
This, however, is not as easy as walking out of your rented apartment and buying that dream house. You know the one in the quaint neighborhood, the one with the white picket fence. Yes, that one.
If you do not have the cash to finance this acquisition, you can always apply for a home loan – commonly known as a mortgage – so that you can get your dream house.
There are different types of home loans from which you can choose. Below we elucidate on the commonest times.
Fixed rate mortgage
This is the most common type of home loan. The fixed rate mortgage consists of a single interest rate as well as a monthly payment for the life of the loan, which is typically 15 or 30 years.
This interest rate does not change over the life of the loan. All you have to do is pay the same amount every month till the loan is paid off.
This type of loan is especially good for people who believe the time has come for them to set down roots and believe that they are not going to be moving from their home any time soon.
Adjustable rate mortgage
The adjustable rate home loan is the opposite of the above type of mortgage.
This because unlike a fixed-rate home loan, which sports an unchanging interest rate over the life of the loan, the interest rate on an adjustable-rate mortgage, can change from year to year.
These rates are typically lower than you would get with the fixed-rate type for a period of time such as 5 or 10 years. But after that, your interest rates – and therefore payments – will adjust, typically once a year, roughly corresponding to current interest rates.
This type of loan is great for people who are going to move soon. It is also good with a not-so-good credit score and as such cannot attract good rates from a fixed rate mortgage.
FHA home loan
The Federal Housing Administration home loan is a type of mortgage that differs from the previous pair in a way that the down payment made to secure the FHA loan is significantly lower.
Whereas in the adjusted and fixed rate type of home loans one pays about 20 percent of the price of the home, here on pays about 3.5 percent. It is for reason that this type of home loan is suitable for people whose savings are not enough to pay the down payment.
However, there is a catch. Make that ‘catches’, plural. You are required to pay mortgage insurance – either upfront or over the life of the loan – which hovers around 1per cent of the cost of your loan.
The loan amount is also usually limited to around $417,000 and the interest rate is fixed for a time ranging from 15 to 30 years.