Finding the right loan according to your financial situation is crucial when buying a new house. The last thing you must do is get over your head and lose the property somewhere. Not only would this cost you the dream house, but it could also harm your household relationships. Luckily, you can easily avoid silly blunders by learning more about the available financial options. In this article, we look at six common types of housing loans and how they would work for your family.
Traditional home loan
Traditional home loans were always the most popular financing for your property purchase. These are straight and easy-to-understand agreements where new homeowners must fulfill their financial obligations during a 30-year year.
The good thing about traditional home loans is that the interest rates remain unchanged throughout the payment period. Among others, this is why people prefer this type of loan. But homeowners don’t like when they must sweat all these variables and interest rate fluctuations.
Traditional loans can also go with a shorter payment window. For example, you can choose a 15 or 20-year mortgage. With these loans, monthly payments will be significantly higher, but you can take care of your obligations much faster.
Although less popular than the traditional loan, the reverse mortgage has a massive advantage over other options. Specifically, this is a type of loan you can use to refinance your other housing obligations.
A homeowner is only obligated to the lender once they die, sell the home, or change their residential status. Furthermore, they will have to start making payments if they fail to maintain the property or pay taxes or insurance.
Suppose you wish to calculate reverse mortgage costs. In that case, you should use this nifty online reverse mortgage calculator All Reverse Mortgage Inc. offers.
As you can guess by the name, ARM or adjustable-rate mortgage has a fluctuating interest rate. The interest rate will be significantly lower during the initial period than the average loan interest rate. However, as time goes by, it will go up and up.
The tricky thing about ARM is that the interest rate of this loan will eventually surpass that of a traditional loan. In other words, while it can be a great solution initially, giving you some financial leeway, it will become a burden after a while.
Calculating ARM can be challenging, given that the interest rate adjustments are connected to various indices. So, you should have some financial education to pursue this option. Furthermore, adjusted-rate mortgages are much better for families that can pay off their obligations quickly.
You should target a FHA loan if you have a low or moderate income. Created by the US Federal Housing Administration, this financial product presumes a much lower down payment than other types of loans. Then again, the down payment will vary depending on your credit score.
The financial institutions also review your DTI or debt-to-income ratio before approving a loan. This metric represents your pre-tax income reserved for paying various types of loans. In other words, how much money do you have to spend each month to cover your current financial obligations?
VA loans are another type of public loan. These mortgages are tailor-made for army veterans, and like FHA loans, they have much better terms than other financial products. Then again, they also have some similarities to traditional mortgages. Specifically, you can get a VA loan at any financial institution or bank.
To qualify for this type of loan, a person must have a certain number of years spent in the army. Aside from army veterans, their family members are also eligible for VA loans. These loans have excellent terms, not requiring a down payment or insurance.
Lastly, we’ll briefly touch on interest-only mortgages.
Unlike other financial instruments, interest-only mortgages prioritize interest payments. You’d only be responsible for paying the interest during the first few years. After that, you start reducing the principal as well.
The good thing about this type of loan is that the initial payments are much lower. Unfortunately, this also means that the mortgage becomes more expensive later. Like ARMs, only those with advanced economic knowledge or good a consultant should consider this type of loan.