A new home is a major investment. If you are like most home buyers, you may not have enough cash on hand to buy your dream house outright. You’re going to need a loan, but which kind?
As a borrower, you’ll be glad to know that there are different home financing options available to you, from a fixed rate home loan to a USDA loan. Let’s take a closer look at some of these mortgage loans so you can determine which one would be best for you.
Fixed and Adjustable Rate Mortgage Loans
All mortgage loan options may either be a fixed rate or an adjustable rate mortgage loan, though there’s also a hybrid loan that incorporates characteristics of both.
A fixed rate home loan from lenders like Primary Residential Mortgage, Inc. has the same interest rate all throughout the repayment term. This means that the amount you repay every month will be the same, even if you choose a long-term financing option such as a 30-year mortgage loan.
On the other hand, an adjustable rate mortgage (ARM) loan has an interest rate that changes over time. In this financing option, the interest rate usually changes annually after an initial fixed rate period. You may see this loan product being offered as a hybrid ARM loan, with 3/1, 5/1, 7/1, and 10/1 options.
In a 3/1 ARM loan, 3 refers to the number of years where there is a fixed rate, and 1 refers to when the interest rate will adjust. This means that this loan has a fixed interest rate for the first three years, after which the rate will adjust every one year.
FHA, VA, and USDA/RHS Loans
There are also government-insured loans available for home buyers: FHA loans, VA loans, and USDA loans. The first one is managed by the Federal Housing Administration and allows you to make a down payment as low as 3.5 percent of a house’s purchase price.
The second is managed by the Department of Veterans Affairs and is offered to military service members and their families. In this loan option, borrowers can receive full home financing, and down payment is not necessary.
The last federal government-guaranteed mortgage loan is managed by the U.S. Department of Agriculture’ Rural Housing Service. This is specifically offered those living in rural areas who have a steady income but are not able to get adequate housing via conventional financing options.
These are just some of the mortgage loans available for home buyers. Which one do you think would be the best fit for you?