When looking for a home loan, there are many options available that fit your lifestyle and financial objectives. Whether you’re just starting out or an experienced buyer, choosing the right type of mortgage can lead to lower interest rates and more manageable monthly payments.
Conventional loans are an ideal option for borrowers with good credit scores and stable income streams. Furthermore, these loans have lower down payment requirements, making them perfect for first-time homebuyers.
Conventional loans tend to have lower monthly costs than other types of mortgages, like FHA or VA loans. However, these loans require stricter credit criteria than other kinds of mortgages so having good credit and an income that demonstrates you can afford the monthly payments is recommended.
FHA loans are government-backed mortgages that provide housing opportunities to borrowers with modest incomes and bad credit. They’re also available as adjustable-rate mortgages (ARMs), which appeal to those looking to lock in their interest rates for a set period of time.
Adjustable-rate mortgages offer a lower initial “teaser” rate than many other loan types, providing relatively lower monthly payments at first. After that, your interest rate adjusts according to market rates.
If you anticipate that interest rates may rise in the future, it’s wise to steer clear of adjustable-rate mortgages. Doing so could cost you thousands more in interest than if you had chosen a fixed-rate loan instead, which provides much greater stability and predictability with your payments.
If you’re in the market for a new home or looking to refinance an existing one, a reverse mortgage can be the ideal solution. It allows you to use the equity in your current residence as collateral for paying expenses. It frees up cash that could otherwise go towards paying off debt or covering college tuition.
Bridge loans, also known as gap financing, can be an advantageous choice if you’re transitioning from one house to another. With this type of loan, the existing and new mortgages are combined into one, and repayment only becomes due once your old home has been sold.
Transitioning from a larger to a smaller home is often the preferred option for those transitioning, as it helps them maintain their budgets and prevents a housing meltdown. Furthermore, older homeowners who have substantial equity in their existing property but lack the financial means to make traditional down payments on new houses have another great option – equity escrow.
The most popular mortgages include 30- and 15-year options. However, you have other short-term loan options to consider for your home purchase or refinance as well – these include 15-year fixed-rate mortgages, 10-year adjustable rate mortgages and 7- or 5-year ARMs. All these options have varying terms so it’s essential that you find one that meets your needs best.