If you're getting ready to buy your first home, we can only imagine all the emotions you must be experiencing. Of course, at the top of the list is pure joy at the prospect of being a homeowner. Your life is about to change substantially.
However, it's only natural to experience some stress and anxiety about the home buying process as well. After all, buying a home is a huge commitment.
Do you know what types of home loans are available to you? Do you know how to pick the best one?
We're here to help alleviate some of your stress. Keep reading for a quick guide on the different types of home loans.
First, let's talk about one of the most common types of home loans - conventional loans. Conventional loans are often sought after because they provide fixed, low-interest rates. However, they are some of the most difficult loans to obtain.
To qualify for a conventional home loan, you need to have a minimum credit score of 620. However, having a higher credit score has multiple benefits, such as:
- A lower required down payment
- Lower interest rates
In most cases, conventional home loans demand a 3% down payment or higher. It's important to note that most lenders will make you purchase mortgage insurance for anything less than 20% down. This will add to your monthly mortgage payments.
Learning how to choose a home loan can be difficult, especially if you have a limited income and/or poor credit. Fortunately, FHA loans allow home-buyers who fall into this category an equal chance to purchase a home.
FHA loans can be obtained with a credit score as low as 500. If your score is below 580, you'll need to provide a 10% down payment on the house. A score of 580 or higher only needs a 3.5% down payment.
These types of home loans, however, have mandatory mortgage insurance, regardless of the amount down. This is how it is possible for FHA loan providers to hand out such great loans for people with less than ideal financial qualifications.
VA loans, like FHA loans, are government-backed home loans. These types of loans are only available to active duty, reserve, and veteran military personnel.
Aside from incredibly attractive interest rates, VA loans can be obtained with zero money down. VA loan credit approval is generally in the 600s, though it varies from lender to lender.
Fixed Mortgages Vs ARMs
Finally, let's talk about the difference between fixed mortgages and adjustable-rate mortgages. A fixed mortgage, as you have probably surmised, has a fixed interest rate throughout the life of the loan. The only way to change it is by refinancing.
ARMs, on the other hand, have interest rates that will fluctuate with the economy and current housing market. They typically pull buyers in with a guaranteed low rate for the first few years. After that, however, your rate can go up or down.
In some cases, it's easier to get approved for an ARM, which motivates many first-time homebuyers to take the risk. Additionally, you can refinance after the first few years (assuming you are qualified) to get a fixed mortgage with better terms.
What Types of Home Loans Do You Qualify For?
As you can see, there are plenty of home loan options, even for first-time buyers. Find a home loan that suits you and your financial situation best. Remember, there are pros and cons to the different types of home loans, so take your time when deciding.
And if you need help finding your next home, we can help. Use our site to find an agent to help you find the perfect home for you and your family.
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