A 2019 study shows that the average American buys their first house at 39 years old. If you’re looking to buy your first house, let us be the first to congratulate you! The housing market is as ripe as ever.
The best part is that there are plenty of great opportunities to seize. A good example of this is the types of home loans now available for those looking to purchase their dream home.
It’s only a matter of knowing which ones you qualify for and which are the most suitable for you. Find out more about the best home loans and why they’re worth looking into. With the right knowledge and information, you’re sure to be a step closer to being a homeowner.
When aiming for homeownership, you’ll find government agencies that can back you up. What’s great about these loans are they’re often more preferred by lenders. They’re lower-risk and financed by a reputable agency.
Though government-backed loans can get quite specific with their criteria. Depending on the agency you plan to go with, you’ll have to meet certain requirements to qualify. That said, they’re also able to give you additional benefits or adjusted premiums.
FHA or Federal Housing Administration Loans
One of the most common government-backed loans is the FHA loan. Many even claim that they’re easier to get than most conventional loans available. One major advantage is that you only need a 3.5% down payment.
It’s also the better option if you’re worried about your credit score and DTI Ratio. They only require a credit score of 580 and a 43% debt-to-income ratio to qualify. They do impose a borrowing limit, though, as well as property type considerations.
United States Department of Agriculture or USDA loans
Like the FHA loan, the USDA loan is also a good option for low to moderate-income individuals. Unlike the FHA, it doesn’t have a downpayment requirement, though you might have to deal with geographic restrictions. However, if your dream home is in a rural area in the US, then it’s still worth considering.
Their lower payment plans (.35% factor and 1% upfront fee) make USDA loans worth it. Unlike FHA, despite their county income limits, they also have no loan limits.
Department of Veterans Affairs or VA loan
Another loan to consider is the VA loan. It’s one of the most flexible loans that any future savvy homeowner would want. Through it, you won’t have to worry about credit scores, down payment, loan limits, or PMI.
However, you have to meet specific service requirements set by the Veteran Affairs. This means you should check and verify your eligibility first. As a first step, make sure that your history with the Armed Forces or National Guard is stellar.
Those looking into buying properties often gravitate to the bank to see if they qualify for a conventional loan. Known as conventional mortgages, they are by far among the most common types of home loans. That said, they have some requirements you need to be aware of.
Your credit score is vital to your ability to get a conventional loan. Without at least 620, you’ll have a hard time qualifying. If you do qualify, you can put down a down payment as low as 3%.
That said, going for 20% down means you don’t need private mortgage insurance. If you need insurance, the rates are often lower for conventional loans. Those able to put a big chunk down can take advantage of lower interest rates with a conventional mortgage.
If your credit score or debt-to-income ratio is bad, “non-conforming loans” are an option. These don’t have the same regulations or protections as standard conventional loans. If you’re having trouble qualifying for a conventional loan, try the other options on this list first.
Alternative options like HardMoneyMan.com LLC are also worth looking into.
Fixed-rate mortgages are a great option for those looking to take advantage of low rates. As the name implies, these loans fix your monthly interest rate payments at the time you sign the deal. This means if you put pen to paper when interest rates are at a historic low, you’re protected from any future interest hikes.
Changing property taxes and insurance rates can alter your payments a little. That said, for the most part, your rates would stay fixed. Fixed-rate mortgages are good for those who have found their forever home.
The stability of long-term financial planning, which fixed rates allow for, is vital. Those planning to move soon or purchasing in a high-interest area might want to avoid them, though. If you get locked in for a long-term fixed mortgage, you could fall prone to overpaying.
Also known as ARMs, these are loans with changing interest rates over 30 years. Unlike fixed-rate loans, which stay constant throughout the period, ARMs work in phases. When you first get an ARM, you negotiate an initial period between 5 to 10 years.
During this “introductory period,” the rates stay fixed at what they were when you signed. After it expires, the lender looks at current rates and adjusts accordingly. With an ARM, you sacrifice the security of a fixed rate for the entire duration, but you get something else.
The first period of fixed rates is often lower for an ARM than for fixed-rate mortgages. You’ll also have the protection of rate caps during your second period. This means even if interest rates soar later, your payments won’t soar with them.
It’s important to talk to your lender or financial adviser if considering an ARM. Ask what the rate caps are, and try to understand where interest rates will be in 5-10 years. Those who plan to sell early often find ARMs the best home mortgage option.
They can take advantage of lower rates in the first period and sell before the second. Through this process, they can save a ton of money.
Ideal Types of Home Loans for You
When it comes to the different types of home loans, there is a lot to choose from. You need to consider your personal finances and credit score to see what you can qualify for. An assortment of government-backed options is also available to take advantage of.
For more information on the different loans options available to you, check out our site.