If you can find your dream home then the first thing that will come in your mind will be to get a loan from a lender so that you can buy that home a move into it. But securing a home mortgage is not an easy task unless you do not know its pros and cons. You will have to consider a number of things while shopping for a home loan like how long you will stay in that home, the location of the home, or you have to compete with how many buyers while buying that home, etc. So while deciding to take a home loan you should spend some time to research about different types of home mortgages and which will be most suitable for you.
Types of home mortgage
Basically, home mortgages are of two types conventional home loans and government-supported home loans. Conventional home loans are not backed by federal or state government but government-insured home loans are backed by the federal government. So, the lenders of conventional loans are at a bit more risk and for that reason either you have an exceptional credit score or pay a higher interest rate on the home loan. So before applying for a home loan, you must have brief information about their different types.
One of the most common types of home mortgages is the conventional loan for homebuyers. According to expert conventional home loans are insured by private insurance providers instead of Federal or state government. Conventional home loans are further divided into two types conforming home loans and non-conforming home loans. All conventional loans are conforming home loans unless they are taken to buy a home whose price is over the limit of federal loans. This type of loan is called non-conforming or Jumbo loans and they are a bit expensive than conforming loans.
Government-supported home mortgage
Government-backed home mortgages are a good alternative to conventional home loans. These loans are insured by three different agencies like the U.S. Department of VA or Veteran Affairs, USDA of U.S. Department of Agriculture and FHA or Federal Housing Administration.
VA home loans are provided to the veterans or active members of the U.S. Military to buy a home. The eligible personnel need not pay any mortgage insurance or down payment for this home loan. Moreover, the closing costs are also borne by the sellers. However, one can buy a specific type of property with this loan.
This type of home loan is specifically designed for homebuyers from the low-income community who are trying to buy a property in the rural areas designated by USDA. The address of the homebuyer should be from those rural areas to be eligible for this loan. One should neither have a high credit score nor has he to pay any down payment. The interest rate of this loan is also very low.
The easiest government-aided home loan that homebuyers can get is an FHA loan because FHA lends this loan to borrowers who cannot repay the loan on time. Te homebuyers have to pay a very low upfront payment like 3.5% of the total purchase price of the home. Moreover, to get this loan you need not have a high credit score.
The interest rates of ARMs or adjustable-rate mortgage never remain fixed. They change with the fluctuating market conditions. So, when the interest rate is low then the borrower can save money for some time. It is the best option for those who want to stay at one place for a long time.
It is one of the best types of home mortgages as it improves the predictability and stability of the homebuyer. Though the borrower has to pay the same installment every month but this loan also protects from the rise and falls in the market. These loans are normally taken for a long time like 15, 20, or 30 years, etc.
Thus by knowing about different types of home mortgages, it will be easier for you to buy a dream home and move into it very soon. You should compare the pros and cons of all the options before deciding upon one type to apply for a home loan.