Homeownership can be a daunting financial decision. However, it can also be rewarding for your future when done or managed right. But, ask people who already experienced going through the homebuying process, and you’ll get the same answer. They’ll tell you that the pressure to secure the appropriate home loan or mortgage will always be there. It can even be overwhelming most of the time, especially for those purchasing a house for the first time. 

Many types of home loans exist. Factors that can make one better suited to your circumstances include your income and how long you plan of staying in the house. Where do you want to live is also a deciding variable.

Make sure to read more information regarding mortgages to know how things work in this type of loan. Learning more about the different mortgage options you have will also help, and that’s what you’re going to find out in this article.

1. Fixed-Rate Mortgages

The interest rate for this mortgage’s entire life is fixed, thus, the name. Borrowers who prefer getting locked into a predetermined or set interest rate should choose fixed-rate mortgages. 

These mortgage loans can vary in terms of length, with the 30-year one being the most common. If you opt for a shorter-length fixed-rate loan, like a 15-year one, you can save so much money in interest.

However, it’s essential to keep in mind that a borrower should only commit to a 15-year mortgage if they’re confident that their budget can handle it. That’s because monthly payments on a shorter fixed-rate loan are much higher, so it can cause problems to your finances later on, especially if you experience a financial emergency. 

If there’s one advantage of taking a fixed-rate mortgage, it’s the fact that budgeting will be predictable and straightforward for the borrower because the entire term’s monthly payment is fixed. But, unless you refinance, you’ll be locked into the same higher interest rate you got when you took the offer, even if current rates have become significantly lower. That’s the downside of this type of loan.

2. Adjustable-Rate Mortgage (ARM)

Interest rates in adjustable-rate mortgages are typically lower when compared to fixed-rate loans for a specific period. Rather than lasting up to the entire mortgage’s duration, such an arrangement can only be up to five or ten years. Interest rates will adjust based on the current rates in the market after that.

Adjustments typically happen once a year. That means you’ll pay less if interest rates plummet. However, your monthly payments become higher when rates shoot up.

3. Federal Housing Authority Loans

Contrary to popular belief, the government doesn’t directly issue Federal Housing Authority or FHA mortgages. The FHA insures the loans, but some lenders can offer them on behalf of the government. Compared to conventional mortgages, it’s often less difficult to qualify for FHA loans because of their flexible lending standards. 

People with a not-so-high debt-to-income ratio or excellent credit scores should find FHA mortgages a more convenient choice. One might qualify for this type of loan with a 3.5% down payment by having at least a 580 rating.

4. VA Home Loans

VA home loans are another mortgage option specifically available for veterans and people currently serving the military, including their spouses. In most areas in the US, VA mortgages up to USD$500,000 won’t require a down payment. In locations where there are expensive housing markets, the values may be higher.  

VA mortgage lenders are willing to approve borrowers with not-so-high debt-to-income ratio and not-so-excellent credit ratings because the VA provides a guarantee like the FHA. You’ll have to pay a funding fee that can be up to 3.3% of your loan in this type of mortgage, although paying for PMI or private mortgage insurance isn’t required.

5. USDA Mortgage

The USDA Rural Development mortgage is another government-sponsored house loan program. Its target recipients are families in rural areas. No down payment is necessary for this type of loan because the government finances 100% of the USDA-eligible homes’ prices. Interest rates are also often discounted. 

USDA mortgages are designed to put house ownership within the grasp of borrowers who are struggling financially. That’s why affordable mortgage payments are on offer. However, there’s a catch with a USDA home loan—the debt loan shouldn’t exceed the borrower’s income by over 41%. Mortgage insurance will also be required.

Final Thoughts

It’s more straightforward than ever to get approved and find a mortgage that matches your long-term personal and financial goals because of the Internet. There’s now much information available online covering mortgage terms and rates. If you want to compare your options, it’s also possible to run the numbers through an online mortgage calculator to show the difference in terms of monthly repayments.

Hopefully, this post has helped you better understand the various types of home loans available so you’ll find the best one for you.