For most prospective homeowners, unless they can afford to purchase cash, finding the ideal property is only half the battle to calling it home. Fortunately, mortgage loans are a practical financial tool that can be used to finance your purchase. Read on to find out how to choose the best home loan.
What Is a Mortgage?
A mortgage payment involves two main components, the loan amount called the principal amount and an additional amount known as the interest which is calculated as a percentage of the principal. These amounts are repaid by the borrower in monthly installments set by the lender.
The Six Main Types of Mortgages
– Conventional Mortgages
– Conforming Mortgage Loans
– Nonconforming Mortgage Loans
– Government-Insured Federal Housing Administration (FHA) Loans
– Government-Insured Veterans Affairs (VA) Loans
– Government-Insured U.S. Department of Agriculture (USDA) Loans
Fixed-Rate Mortgages
Fixed-rate mortgages are loans that involve a fixed interest rate for the entire duration of the loan, which can range from 10 to 30 years. If you wish to pay lower amounts of interest, you can opt for a shorter-term fixed-rate mortgage that involves higher monthly payments. Fixed-rate mortgages are the perfect option for buyers who are looking to have clarity and stability regarding their financial obligations.
Adjustable-Rate Mortgages
Adjustable-rate mortgages on the other hand involve a higher degree of risk. They involve a fixed rate for the initial life of the loan of up to 10 years, after which the rate is linked to market conditions in the form of an index or benchmark rate. While this can involve lower monthly payments, there is also the risk of having to pay more. These are the ideal option if you are looking to sell your home or to refinance your mortgage soon.
First-Time Assistance Programs
There are also multiple special programs supported by state and local housing authorities that offer assistance to first-time buyers. These programs offer support based on the buyer’s financial profile and can provide down payment grants which help first-time buyers save on their closing costs. by states or local housing, authorities offer help specifically to first-time buyers.