Types of Housing Loans: Choose the Right One

Housing Loans

Types of Housing Loans: Choose The Right One

Are you worried about figuring out the best type of mortgage to buy your dream home?

If yes, then stick to this post until the very end, and you’ll soon realize that choosing amongst the different types of home loans isn’t that problematic. When you wisely choose between the different types of mortgages, you could easily save a lot on your down payment, fee, and interest.

You just need to know the types of loans available, and if you’ve budgeted a down payment amount, reviewed your credit, then you would have more clarity for choosing the right home loan plan for you.

Fixed-rate Loan

It is a type of the most common conventional loan, where the life of the loan is typically around 15-30 years. In this type of loan, you are supposed to pay a single interest rate every month until you completely pay the loan. A Fixed-rate loan also includes a down payment.

Eligibility Criteria

Recommended for homeowners who possess a permanent job and are comfortable paying a fixed amount of savings every month. If you plan to stay in the same house as long as you are paying the loan amount, this kind of loan would be best suited for you. Anyone who plans to move after a little while must consider other loan options.

Adjustable-rate Mortgage

Adjustable-rate mortgages (ARM) offer mortgage interest rates lower than a fixed-rate mortgage for a certain period, such as five or ten, rather than the entire life of the loan. Unlike Fixed-mortgage rates where the interest rate is adjustable, only the initial interest rate is fixed for a certain period of time. After this initial period, the interest rates reset at yearly or even monthly intervals. ARMs are also referred to as variable-rate mortgages or floating mortgages.

Eligibility Criteria

It is well suited for home buyers with lower credit scores. Because it is generally not possible to get reasonable rates on fixed-rate loans if your credit score is low, therefore an adjustable-rate mortgage can help push those interest rates down enough to put homeownership within your reach.

This type of loan will also be an excellent option for you if you wish to move and sell your home before the fixed-rate period is up. The only problem with ARM is that your monthly payments can fluctuate.

FHA LoanFHA Loan

Are you bothered about the down payment amounts involved in different mortgage types? Then FHA or Federal Housing Administration loan is for you. With the help of this loan, you can borrow as much as 96.5% of your home’s total value. Unlike other typical loans that involve at least 20% of your home’s purchase price as the down payment. With an FHA loan, you’ll need to make a down payment of just 3.5%

Eligibility Criteria

FHA is usually recommended to homebuyers with very meager savings. To qualify for this loan, buyers must have a credit score of at least 580. Even If your credit score falls between 500 and 579, you can still apply for an FHA loan, but you’ll have to make a 10% down payment.

VA Loan

VA loan could be the best alternative to a conventional loan if you have served in the United States military. Veterans that qualify for a VA loan easily bag their sweet home with zero down payment and no mortgage insurance requirements.

Eligibility Criteria

The US Department of Veterinary Affairs backs the VA loans, and therefore VA has strict requirements for people to qualify for it. If you are active in military service and have served for 90 continuous days, you will be eligible for this loan type.

If you want to know more about the criteria for a VA loan, proceed to this post.

USDA Loan

The USDA Rural Development loan is designed primarily for families residing in rural areas. It is a Government-backed loan in which the government finances the entire 100% of the home price. USDA-eligible homes need no down payment and are offered discounted mortgage interest rates to boost.

Eligibility Criteria

People living in rural areas who are facing financial issues can access USDA-eligible home loans. These home loans are particularly designed to bring homeownership within easy reach with affordable mortgage payments. To comply with the USDA loan, your debt cannot exceed more than 41% of your income. Also, you’ll have to purchase the mortgage insurance with the FHA.

Frequently Asked QuestionsPeople Also Ask

  1. How many different types of housing loans are there?

There are a total of 8 types of mortgage loans for buyers and refinancers. These include fixed-rate, FHA, VA, adjustable-rate, USDA, interest rate mortgage, and Jumbo mortgage.

  1. What are the 4 types of housing loans?

The 4 main types of personal loans are-

  • Unsecured Personal Loans
  • Secured Personal Loans
  • Fixed-Rate Loans
  • Variable-Rate Loans
  1. Which type of loan is the cheapest?

The secured loans typically offer the lowest interests as compared to unsecured loans. The reason being lenders may consider a secured loan to be lesser risky as there’s an asset that backs up your housing loan.

Conclusion

Many new home buyers get confused while choosing the right mortgage plan, as there are several options to choose from. One best tip to make this process a bit simpler would be to figure out certain things. Nailing down things like your budget and down payment and reviewing your credit score will help you have a better idea as per your requirements.

Related to housing loans: Mortgage Calculators

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