Over five million homes were sold in 2018, a number that picked up traction into the following year. While the jury is still out on how the housing market will perform in 2020, homes are certainly changing hands which means if you’re a buyer, this year could be your year.
Before you run out and buy a dream home though, you’ll likely need to deduce what the best type of home loan is for your unique situation.
There are several types of home loans that lenders facilitate. Below, we quickly go over five of the most common options.
1. Fixed-Rate Mortgages
At the very top of the home loan/mortgage list is the ever-popular fixed-rate mortgage. With a fixed-rate mortgage, what you see is what you get.
You’re offered a certain dollar amount that you can spend on a house and an interest rate that will never change over the life of your loan. This allows you to accurately predict how much you’ll pay each month for your house during your loan term.
2. Adjustable-Rate Mortgages
Home buyers that can’t get good fixed-interest rates may opt for adjustable-rate mortgages.
Adjustable-rate mortgages are always cheaper at the start but have the potential to balloon over time. This growing (or sometimes shrinking) is caused by the raising and lowering of federal interest rates.
Given the volatility of adjustable-rate mortgages, planning long term around this avenue of borrowing can be difficult.
3. VA Loans
You may have heard of home loans for nurses or farmers but did you know that if you’ve served in the military, you likely qualify for special mortgage terms? VA loans are serviced through banks, backed by the government, and offer special perks like $0.00 down.
You can learn more about VA loans on the veteran’s affairs website.
4. FHA Loans
FHA loans are serviced through the Federal Housing Administration and are targeted at helping first-time home buyers. These loans offer ultra-low down payment requirements (~3.5 percent at the time of our writing).
There are some basic qualifiers to attain an FHA loan including overall positive credit history. You can explore FHA loans further here.
5. Hard Money Loans
While hard money loans wouldn’t make it onto most people’s best type of home loan list, if you’re a real estate investor, you’ve likely used hard money once or twice.
Hard money is usually awarded by a private investor, not a formal banking institution. The money tends to cover up to 80% of a property’s value and the expectation is that it will be paid back quickly (typically within 18 months).
Given those terms, most home buyers that use hard money do so to flip their properties.
Your Best Type of Home Loan Options Extend Far Beyond This List
While our best type of home loan picks certainly represent what most people would consider great options, our picks are by no means exhaustive. Because of that, we recommend using our suggestions as a jumping-off point and going over your full breadth of choices with a lending or legal professional.
Our team wishes you the best of luck in finding your dream home and welcomes you to read more of the newest content on our blog!
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