What Are the Different Types of Home Loans That Exist Today?
For those looking to buy a home today, it can be tough going. COVID-19 has impacted many people’s wages not to mention how it turned the housing market on its head. The upshot is that there’s a lot of competition for not enough homes, which drives prices higher.
If you’re hoping to purchase a home for yourself, you’re more than likely going to need some sort of loan. But what kind is best for you? There are several different types of home loans available, and the one you choose is hugely important.
This guide will give you a rundown of some of the most common types of home loans, and which one might be the best home mortgage for you. Read on to find out more.
1. Conventional Mortgage
The conventional mortgage is the type of loan you’d most often think of when talking about home loans. This type of mortgage falls into two categories: conforming and non-conforming. This refers to whether or not it follows Federal Housing Finance Agency standards.
Conforming loans are best for people who have good credit scores. If you have a poor credit score, you may have a better chance of getting a non-conforming loan, although your interest rates may be higher. If you’re going with this type of loan, it’s good to know what to avoid.
2. Fixed-rate Mortgage
Fixed-rate refers to the amount of interest you’ll need to pay back on your mortgage over time. This means you’ll always have the same payments, so you won’t have any surprises. However, rates are likely to be higher overall than those of adjustable-rate loans.
3. Adjustable-rate Mortgage
In contrast to the fixed-rate mortgage, an adjustable-rate mortgage has an interest rate that varies depending on how the market is behaving. While this option is less predictable, it can also help to save homeowners money on the interest they pay. On the other hand, if the market is volatile, you could end up with unmanageable repayments.
4. Government-insured Mortgage
If you satisfy certain criteria, you may qualify for a loan that’s backed by the US government. If you’ve got a poor credit history, can’t afford to save a large downpayment, or are a veteran of the US military, there may be a loan available to help you achieve homeownership. This is great for those struggling to buy a home, but the requirements can be quite stringent.
5. Jumbo Mortgage
As the name suggests, a jumbo mortgage is a mortgage involving a large amount of money. These are loans for people who live in areas where housing is especially expensive such as New York and San Francisco. You will usually need to have a good credit score and a sufficient downpayment to qualify.
Different Types of Home Loans
There are many different types of home loans. This is why it’s so important to do sufficient research in order to determine which is the best home loan for you. If you’re looking for more financial advice, check out the rest of our content now.