Which mortgage type is right for me?
Buying a home is no small decision. It’s a commitment that will absorb the largest part of your income over the next thirty years. The process is involved, to say the least, and can be a bit daunting for those who have never taken a course in real estate. The first thing to gather is that a mortgage is always tied to a loan, so when you’re discussing mortgage types, you’re actually discussing loan types. Below, we’ll cover the different types so you can get a better grasp on which one fits your budget and future plans.
- USDA Loans–Part of the USDA Rural Development Guaranteed Housing Loan Plan, these loans are aimed at farmers. These are ideal for people looking to make a living off the land (or supplement their living), and they come in a number of guaranteed variants to accommodate different budgets and livelihoods. The main advantage of USDA Loans is that they require no money down, so they are ideal for buyers who have less money to put down who plan to use the land for revenue that will pay off the loan. These loans are subject to the income limitations of the specified county to which you’re moving, and these cannot be investment properties. The Direct Loans provided by the USDA are aimed at low-income families for properties in need of repair.
- VA Loans–The U.S. Department of Veteran’s Affairs provides loans for eligible American military veterans called VA Loans. Aside from the requirement of military service, there are other stipulations, but the absence of private mortgage insurance (PMI), more of the monthly payment goes toward the actual mortgage.
- FHA Loans–The Federal Housing Administration provides subsidized loans for those who may not have the upfront resources to afford a down payment or fail to meet PMI qualifications. Applicants are still required to secure funding from lenders, since FHA insures the loan rather than providing actual capital. The terms are generally lenient for lower-income families, where they are covered through Mortgage Income Premiums (MIP).
The following reflects the different types of rates and interest stipulations that may be attached to your mortgage loans:
- Adjustable Rate Mortgage (ARM)–The interest rates on the mortgages will change periodically. This is usually an annual occurrence after a fixed tenure, where the interest will then shift up or down according to, which are called Hybrid ARMs because they incorporate both fixed and adjustable interest rates. ARMs are for those who want lower interest rates in the beginning of repayment to get their finances in order–say, for the first five years–but are susceptible to fluctuating rates down the road.
- Fixed Rate Mortgage–As the name indicates, the interest rates on fixed-rate mortgages do not change for the duration of the repayment period. Fixed rates carry the obvious benefit of consistency compared to ARMs, but applicants should expect higher upfront costs.
It’s a smart idea to have a professional from Liberty Lending Consultants walk you through the specifics of each to figure out which plan works, but now you’ll be able to ask the right questions. There are always stipulations involved, such as your current housing situation and equity, but there’s something out there for everyone if you apply for right types and consider your future carefully.