Conventional loans offer a fixed or adjusted rate. With a fixed rate, you can pay your home off between 15-30 years. Depending on the rate you choose, your monthly payments will be higher or lower. You can also choose to have an adjustable rate which will fluctuate every month.
If you’re a first-time home buyer, you will most likely prefer an FHA loan. These loans are insured by the Federal Housing Administration and help home buyers who cannot afford a large down payment or have a low credit score. With this type of loan, you can put down as little as 3.5% with a credit score as low as 580. However, if you choose this loan, you are required to pay an upfront mortgage insurance premium (or MIP). These fees continue monthly until the loan is paid off, or until you can refinance to a non-FHA loan.
A 203K loan is a type of FHA loan. Often for homes that have been foreclosed or are under short sale, this loan will assist in the cost of repairs needed before moving in. The funds for repair are listed within the loan amount. With this, you must pay 3.5 percent of the down payment.
A USDA Rural Development loan is funded by the United States Department of Agriculture. These loans help low- or moderate-income individuals repair or renovate a home in rural communities. If you qualify, you can purchase a home with no down payment, limited closing costs, and a lower mortgage rate. This type of loan is not limited to first-time home buyers and is easy to qualify for.
Veterans Association (or VA) loans are for qualifying veterans, current military, and their families. These loans are guaranteed to the lender and come with benefits not often found within other types of loans. You will often never pay a down payment or mortgage insurance.
For those able to purchase a home at a higher cost, a Jumbo loan will cover up to $5 million. These can have adjusted or fixed rates. This type of loan does not always require mortgage insurance when the down payment is less than 20 percent.
A reverse loan allows you to take equity you have in your current home and convert it to cash. These are best for retired homeowners looking for supplemental income. To qualify for this type of loan, you must be 62 or older and be the primary residence of the home. There are no income, job, or credit restrictions, and you do not have to repay the loan until it is no longer your place of residence. Home Counseling is required.
Refinancing is the process of using a loan to pay off another. Doing this helps to decrease your monthly payments through a lower your interest rate. In this process, you can consolidate your debt and/or convert to a fixed rate from an adjustable one. Because homes often increase in value, refinancing could allow you to make payments on fixing your home, paying off credit card debt, or paying for school tuition.
Adjustable Rate Mortgage loan (or ARM), gives you a lower rate when you first buy. However, this type of loan will cause a fluctuation in monthly payments. This loan gives you four rate plans:
- 3/1 ARM: set rate for 3 years, adjusts every year for 27 years
- 5/1 ARM: set rate for 5 years, adjusts every year for 25 years
- 7/1 ARM: set rate for 7 years, adjusts every year for 23 years
This is best for people who move frequently and do not plan to have a permanent residence.
A Fixed Rate Loan allows you to set your rate for a number of years. With this, you choose when you want your loan paid off, whether it be in 10, 20, or 30 years. Advantages of this allow you to have a secure monthly payment with no fluctuations.
Find more information on How to Start the Home Ownership Process from Cook Residential.
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