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Nowadays it’s easy to get lost in the options and terms various lenders and banks propose you, when you start a mortgage consideration.
Do you know what a conventional loan is? Are some loans really more restrictive than others? Which loan is the best to take? To help you in answering all the questions above, have a look at the list of the most usual loans we prepared for you. Bear in mind that various lenders may have different variations of these loans.
1. 30 Years Fixed Rate Mortgage
It’s clear that the loan is for 30 years and the interest rate is fixed. This is a conventional loan and it is paid off in the course of 30 years. Actually for a lot of people it’s the first kind of loan to come into the mind when they turn their thoughts towards a new house.
This kind of loan, unlike short-term borrowing for UK residents, is good for those, who like stability, do not want to follow the interest rate change or the situation in the market and do not want the interest rate to be adjusted. It gives them the predictability and the payments are the same during the whole period. It’s good for the customers who are happy with the rate they’ve got and do not want it to be adjusted or decreased in course of the time. Finally this loan is ideal for those, who have found the proper house and are going to live in it for rather a long period, let’s say more than 10 years.
If you belong to the people of such kind, most probably this loan is the right choice for you. Usually a minimum down payment of 5 percent is needed for such cases and the seller concessions are generally about 3 percent. This means that the seller can be asked to pay the closing costs of up to 3% of the loan amount.
2. 15 Years Fixed Rate Mortgage
One more kind of a traditional (conventional) loan is 15Years Fixed Rate Mortgage. It’s exactly like the 30-year fixed, but you pay it off twice as quicker. Is there any benefit in it? You may save a fortune actually, because you pay less interest on the loan amount. This kind of a loan is good for those who can afford larger monthly payments than the ones supposed by the 30-year fixed, but do not like adjusting mortgage rates.
3. Federal Housing Administration Loans
FHA is a non-conventional loan. How does it differ? The loan is insured by the Federal Housing Administration and it makes you a more trustworthy borrower as you are backed up by the government in case you fail to pay off the loan. The less restrictive requirements of the loan allow making home buying deals to those customers, who can hardly match the requirements of a conventional loan.
Along with less strict requirements the lower down payment is required, only about 3,5 percent. These are the two characteristic features of the FHA loan. It is available for the customers with a good credit score and more than 3.5 percent are saved for the down payment. One more advantage the loan has is seller concessions of up to 6 percent, so the seller can pay closing costs of the loan amount.
Finally the FHA loans do not require the private mortgage insurance payments on the part of the homeowners. They should pay a mortgage insurance premium for the government guarantee instead.
It should be mentioned that there are certain requirements for the income level to qualify for the FHA loan, but the number of those who apply for it has risen in the recent years. There are a lot of variants of the Federal Housing Administration loans, they may be FHA 30-Year Fixed or FHA 15-Year Fixed, find out which variants are offered by your lending company.
4. VA Loans
VA loans are provided for the US military veterans and are government insured, that makes them similar to FHA loans, but in contrast to the latter they are 100 percent financed, it means no down payment is required. The VA loans also come in 15- or 30-year variations.
5. Jumbo Loans
This kind of loan is for any amount exceeding 417,000 USD. Taking into consideration that the loan amount is much higher than the average one, higher down payment is generally required by the lenders. As a rule the borrowers with such amount are considered riskier than the others, but there is as well a Super Jumbo Mortgage, the term applied to any amount exceeding $650,000. Jumbo loans are available for 30-year fixed, adjustable rate mortgages, or FHA loans. Federal Housing Administration Jumbo loans offer the added benefit of up to 97% financing.
6. Adjustable Rate Mortgages
If you have an Adjustable Rate Mortgage at present do not bó nervous and do not rush for refinancing. The interest rates often vary with such loans, but it’s always useful to follow the rates for several months, before making the final decision. Quite often they adjust in customers’ favor. How does an ARM work? Let’s look at 5-year ARM: it’s a kind of loan having a set interest rate in the course of the first 5 years, after this set period of time the rate adjusts depending on the up to date conditions in the market. The interest rate may change annually, quarterly or monthly, it all depends on the lender and the loan itself.
Such kind of loans is good for those, who do not live more than 5 years in one home. They are also convenient for those, who like to follow the market situation and refinance before the adjustment accordingly. The ARMs are for 30 years total, but most people refinance them into a fixed mortgage partway through the loan. The same is valid for all other types of ARMs, such as a 7-Year ARM, with a 7 year period of fixed interest rate.
Before you make your final decision as to the type of loan you need, make the careful consideration of the overall situation and all the financial aspects. It’s quite a usual thing that FHA loans are often provided with competitive interest rates, make sure to check out all the options available and compare the costs from different lenders. Though many of people are cautious as to the adjustable rate mortgages, bear in mind that these loans usually offer lower interest rates for the initial fixed period than most conventional loans. So if you plan to leave your house in 5 or 7 years, an ARM may be the best option if you want to lock in at a lower rate for 5 years. When taking your decision as to the loan type, make certain you checked every aspect with your lender to choose the most advantageous option for you.