For most potential homeowners, unless they can afford to buy cash, finding the perfect property is only half the battle of calling it home. Fortunately, mortgages are a handy 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?
There are two main parts to a mortgage payment, the loan amount called the principal amount and an additional amount called 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 mortgage loans
– Conventional mortgages
– Compliant mortgages
– Non-conforming mortgages
– Federal Housing Administration (FHA) government insured loans
– Government insured loans for veterans (VA)
– Loans insured by the government of the United States Department of Agriculture (USDA)
Fixed rate mortgages
Fixed rate mortgages are loans that carry a fixed interest rate for the life of the loan, which can range from 10 to 30 years. If you want to pay lower 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 looking for clarity and stability regarding their financial obligations.
Variable rate mortgages
In contrast, variable rate mortgages carry a higher degree of risk. This is a fixed rate for the initial loan term 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 may 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 refinance your mortgage soon.
Aid programs for the first time
There are also many special programs supported by national 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 that help first-time buyers save on closing costs. through the states or local housing, the authorities offer assistance specifically to first-time buyers.
