It can be daunting to decide to buy a house, especially if you aren’t on top of your financial game right now. Most first-time home buyers struggle with finding the right loan for their needs. What is the reason for this? Mostly because applying for a loan is not an easy process, so as a result, most people focus on filling up the application without considering comparing several loan options. Indeed, you need to research the options that are available for your situation and to make the best-informed decision you can. Below is a list of six different kinds of loans that you may want to consider.
1. The FHA Loan
The Federal Housing Administration (FHA) loan is a standard government program loan that requires a down payment that can be a lot lower than what would be required for a typical fixed term loan. The FHA loan tends to focus on a down payment of as little as 3.5% of the purchase price of your home, which, compared to the typical 20%, is a serious advantage. This type of loan is perfect for those who don’t have much savings. However, they are limited in value to $417,000, and the rates are fixed to 15- or 30-year terms.
2. The Fixed-Rate Loan
The fixed-rate loan is the most common type of loan. However, they tend to require a high down payment, up to 20%, unless you look for conventional loan options. Indeed, the minimum down payment for conventional loan starts at 3%, which is more easily manageable. The fixed-rate option is best suited for people who need a predictable plan to follow and who are planning to stay in their home. Indeed, it’s a long-term repayment program. However, conventional loans do differ as they can be adjustable too.
3. VA Loan
The Veterans Affairs loan (VA) is designed for those who have served in the US military. You need to have served either a minimum of 90 days during war times, or 180 days during peacetime, or you can also have served 6 years in the reserves. The program was created in 1944 and, while it is very strict regarding eligibility, it is also extremely helpful if you meet the criteria.
4. Bridge Loan
The bridge loan is a loan that is designed for all those who are already in the process of purchasing their next home while they haven’t yet sold their current residence. It allows you to combine your current and new mortgage into one payment so that you don’t need to worry about keeping ahead of the financing process. However, this transitional option is only valid if you have a good credit history and don’t need to finance more than 80% of the value of the two residences.
5. The ARM loan
The Adjustable-Rate Mortgage is a loan that uses an index to define its interest rate. As a result, the interest rate varies, depending on each lender’s policy. The rate is lower than for a fixed-rate loan, but your monthly payment can rise abruptly to account for the varying rate. They are a good option if you have a low credit score or if you plan to move and sell your home before the repayment is over.
6. The USDA Loan
Finally, the USDA rural development loan is a government financing option for families who live in rural areas. There is no down payment requirement so that struggling families can find it easier to own a home. But, like with the FHA loans, you need to buy mortgage insurance.
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