If you are thinking about buying a house, the first thing you need to do is search for a loan. During your research you will become familiar with the various types of home loans available; you want to review those loans in order to discover where you fit into the picture. While there are many different types of home loans, they do not fit the circumstances of every potential home buyer. You can see some of the more common types of home loans identified below.
Fixed Rate Mortgage
This is the type of loan with which most people are familiar. There is a specific interest rate that remains constant throughout the term of the loan. While it may be a little higher than a fluctuating rate, most people prefer it because they always know what they will be paying for principle and interest; the only part of the payment that will fluctuate is the costs associated with real estate taxes and homeowners’ insurance.
Variable Rate Mortgage
This mortgage model was very popular in the late 70’s and 80’s when interest rates on home loans entered into the double digits. At some periods there was a difference of two or more percentage rates between the interest rate on a fixed rate mortgage and a variable rate mortgage. The problem is these types of loans assume homeowners will receive a cost of living increase every year, so they tend to increase at a rate of approximately ten percent. Over the past ten years or so many companies have put a freeze on salary increases yet those with variable rate mortgages still see the interest rates on their mortgages increasing until they reach the cap, usually from two to four percent over the original rate.
Conventional Mortgage Loan
When you search for a loan you will find many types of conventional mortgage loans including the fixed and variable rate mortgages. These loans are preferred by sellers because there is less paperwork involved and a shorter turnaround time from application to closing. The points are usually less on conventional loans as well since the interest rates are higher than on government insured home loans. Buyers, however, must usually pay at least twenty percent down or have the additional cost of mortgage insurance until the loan balance to the appraised value falls within the lender’s criteria.
FHA Home Loan
These loans usually have a lower interest rate than conventional loans, but the points are usually higher so the lender can make up the difference. The down payment is often as low as three percent, and the credit qualifications are less stringent than conventional mortgage loans. Home loan companies are more likely to approve buyers with questionable credit because the government guarantees the loans thus causing no loss to the lender in case of default.
VA Home Loan
The VA loan is designed specifically for those who have served in the military. The interest rate and points are usually the same as with an FHA loan. Unlike the FHA loan, however, there is no down payment requirement for a VA home loan. When you search for a loan you will need to determine if you qualify for this particular loan or whether you need to look at other loans.