4 Types of Home Loans You Must Know About
Managing the finances to buy a new house can be a bit worrisome. With multiple options in the market, choosing a home loan for a house can be taxing. It is better if first-time homebuyers are aware of the various types of home loans that are on offer.
- Conventional home loans/mortgages: These home loans are not insured by the federal government. The interest rates are higher for conventional loans, but the overall borrowing costs are lower than other types of home loans. This type of loan can be used to buy a primary home, a second home, or even an investment property.
- Jumbo home loans/mortgages: These are similar to conventional loans, except they have non-conforming limits. The home prices are more than the federal loan limits. With jumbo home loans, home buyers can borrow more money to buy a high-end house. Also, interest rates tend to be competitive when compared to other types of conventional loans.
- Government-insured home loans/mortgages: These loans are offered by the Federal Housing Administration (FHA loans, U.S. Department of Agriculture (USDA loans), and the U.S. Department of Veterans Affairs (VA loans). These loans are useful when a homebuyer does not qualify for a conventional loan or homebuyers who have low cash savings or low credit scores. The credit requirements are not very stringent. Moreover, there is no requirement for a large down payment.
- Fixed-rate home loans/mortgages: Usually available in terms of 15, 20, or 30 years, fixed-rate mortgages have the same interest rate over the entire lifetime of the loan. Also, the monthly principal remains the same. This allows homebuyers to have precise planning of their finances. Homebuyers who plan to live in a house for a minimum of seven to 10 years can find fixed-rate mortgages useful and stable.