Choosing the Right Loan Made Easy
Finding the proper financing for your new home can be stressful. Choosing the right kind of loan is vital, however. Everyone’s situation and needs are unique and there are many different kinds of loans to best accommodate as many people as possible. The specific distinctions are confusing, but they are divided into easy to understand categories. By researching ahead of time, you can have a better understanding of what your down payment, interest rates, and monthly payments will look like, which allows you to better plan for your future.
Fixed or Variable Rate Loans
The most basic distinction between loans is whether it has fixed or adjustable rates. Fixed rate mortgages are very straightforward, and are likely what you think of when you imagine a loan. When you agree to the mortgage, the rates are established for the entire duration, usually either 15 or 30 years. Your monthly payments and down payment are clear from the very first day. You will also know how much interest you will pay over the course of the loan. Adjustable rate mortgages, or ARMs, start with a relatively low interest rate, but the plan will change after a certain amount of time, usually no more than seven years. If you are planning to stay in your new home for less than this amount of time, an adjustable rate loan can be very attractive. You can take advantage of the low rates and not worry about any changes to your plan. If you intend to move into your home permanently, however, a stable and secure plan that comes with a fixed rate mortgage can be very appealing.
A third major category of loans are insured loans. These are very specific mortgages that are insured by a third party. They involve significantly less risk for the lender, so they are more willing to offer low rates and little or no down payment. The most common way to get this kind of loan is to go through the Federal Housing Administration and get a FHA loan. Otherwise, there are many organizations that insure loans for members of specific demographics. For example, the Department of Veteran Affairs or the United States Department of Agriculture can provide loans for active military members or those seeking a home in rural areas. If you fit one of these demographics, securing a loan of this type can be a huge benefit.
What to Consider
Once you have an understanding of the different types of loans, consider your situation to decide which is the right one for you. If you are looking to pay it off quickly, find a fixed rate mortgage over 15 years. If you are looking for temporary housing, consider an adjustable rate loan. If you are hoping to minimize your down payment, an insured loan may be your best option. Choosing the right loan for you specifically is just as important as finding a good deal or the right home. Even if the deal is solid from a purely financial standpoint, other factors may not fit in with your circumstances. To create a secure and successful future for yourself and your family, it is vital your loan matches your requirements exactly.