The type of mortgage you select can have an impact on the amount of money you pay each month for your mortgage loan. It can also affect your total loan amount, monthly payments, down payment and risk level. Depending on your particular situation, the following home loans can either help or hinder your financial future.
Fixed Rate Mortgage
Adhering to a budget can allow for luxuries such as a family getaway or new car. If you put enough money aside, you could also have a sizable down payment for a dwelling of your dreams. Interest rates are still low. This makes it an ideal time to purchase or refinance. As one of the most common forms of mortgage loans available, there are both pros and cons associated with the fixed rate mortgage. In the plus column, you’ll be able to know the amount you’ll pay on the loan monthly for the duration. If rates climb, you don’t have to worry because you’re locked in. It’s also much easier to compare and shop rates with the fixed variety. If you’re looking to refinance or sell quickly, it’s probably not the wisest option for a homeowner. Falling interest rates can also be stressful because you’re stuck until you’re ready to refinance or move.
203K FHA Loan
The 203k FHA loan is meant to aid buyers who are looking to purchase and renovate a home. Made possible in the late 1970s, the FHA 203k loan has been streamlined. A buyer is now able to finance most renovation dream jobs when they purchase a home. If you’re looking for a 203k loan, you’ll be happy to know that you don’t need equity on a resident in order to apply. Whether you want an updated bathroom, kitchen or patio, you can finance the renovations when you purchase the home. That means your mortgage and renovation loan for the purchased fixer-upper are wrapped into one tidy payment. While this loan may sound like a dream, the 203k loan can take a lot longer to close than the other types of mortgages. You’ll also need to get bids and only work with insured and licensed contractors.
Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) may sound like a risky venture. This is because your mortgage payments can decrease or increase depending on the interest rates. An ARM can also save you lots of money over the course of the loan. While your rate stays the same over the life of a loan with a fixed rate, an adjustable mortgage changes based on the market. If you can afford the risks, you could pay down your principle within the start of the fixed rate period. But if interest rates sky rocket, so will your mortgage payments. If you plan to stay in your home for a significant period of time, an adjustable rate loan could be risky. This is especially true as interest rates are expected to climb over the course of the next year.
If you’re a qualifying member of service or veteran, a VA loan may be a viable option for you. Because they offer a host of benefits, one of the best is that you can make a purchase with absolutely no down payment. As with the other types of loans, there are also pros and cons associated with a VA mortgage. In addition to no down payment, you’ll find monetary limits set to closing costs. This can reduce your purchase price greatly if the seller agrees to pay the closing costs. One of the down sides to a VA loan is the upfront fees. Depending on your background in service and previous loans obtained, the fees can vary from 0.5 to 2.8 of the loan amount. They can also take a long time to close upon. If you’re in a rush to purchase a home, you may want to look into other loan options.
While this isn’t an exhaustive list of home mortgage loans, these are common ones out there. There is also interest-only that people like to look at when getting into a house for a short period of time. No matter what type of loan you choose, make sure you ask a professional to help you with the process. I recommend reaching out to a mortgage broker, who can help you pick a quality home loan through a reputable company. Mortgage brokers are a great way to see more options and overall costs from different lenders. Just do your homework!