Whether you’re buying your first home or you have bought one before, buying a home almost always requires getting a loan. However, many people don’t realize there are multiple loan types that they could consider. Take some time to consider these options when you’re ready to buy a new home.
Adjustable Rate Conventional Loan
An adjustable rate mortgage (ARM) is ideal for those who plan to pay off their mortgage early, who plan to sell the home after just a few years, or who are buying when interest rates are very high. It begins with a fixed interest rate that is lower than the current market rates, and that rate stays fixed for a set period of time. After that period, your interest rate fluctuates with the market. While there are rate caps that protect you from interest rates that are too high, this does mean that your mortgage payment can and will change once you reach the adjustable part of your loan.
Fixed-Rate Conventional Loan
A fixed-rate loan means that whatever interest rate you’re given when you take the loan is the interest rate you will pay for the life of the loan. It will never increase or decrease, regardless of what interest rates are doing, and your monthly payment will remain the same. Most homebuyers can get a fixed-rate mortgage. You can get a fixed-rate mortgage with as little as three percent down, but if you have less than 20 percent for a down payment, you will be required to carry private mortgage insurance to protect the lender. Once you have 20 percent equity in your home, though, you can stop paying that insurance.
A private lender can be an excellent option for many people. If your credit isn’t great, you’ve got a low down payment, or you are looking at buying a property that is in disrepair or foreclosure, a private lender can help you get a loan faster and more easily than conventional lenders. Plus, they’re not restricted by the same red tape as other lenders, making it easier to buy more unconventional properties as well.
Former and current members of the military (and surviving spouses of deceased military members) are eligible for a government-backed loan that offers certain benefits as a result of their service. There are service requirements you must meet, but if you do, you can get a loan at a lower interest rate than other government-backed loans, and you won’t be required to have private mortgage insurance. You will be required to move in within 60 days of closing (with limited exceptions) and to purchase a primary home with the loan (not a second or investment property).
Before signing the dotted line and agreeing to the debt of a loan, make sure you’re getting the best loan for you. The last thing any homeowner wants is to be filled with regret later because they realize they could have gotten a better deal.
Anita is a freelance writer from Denver, CO. She studied at Colorado State University and now enjoys writing about health, business, and family. A mother of two wonderful children, she loves traveling with her family whenever she isn’t writing. When looking at home loans, she recommends talking to a private lender, like Precision Capital – Your Private Money Source, for advice. You can find her on Twitter @anitaginsburg.