Ready to buy? What type of loan is right for you?

There are many types of home loans. When you first set out to buy a home, deciding what type of loan to get usually factors in somewhere behind price, location and master baths with his and hers sinks, but it is an important decision that you will have to live with for some time (unless you decide to refinance).

The first decision is between a fixed rate or an adjustable rate mortgage.  As implied a fixed rate loan is set at the time the loan is made and stays “fixed” (for the most part) at that rate for the duration of the loan. This way, the monthly payment doesn’t change. An adjustable rate loan changes annually to reflect the current market, so sometimes the rate is higher, sometimes lower and the monthly payment cages to reflect this. There is also a “hybrid” loan that stays fixed for a period of time, then adjusts there after. The most popular of these seems to be the 5/1 ARM hybrid; a loan that is fixed for the first 5 years then adjusts annually thereafter. A good Pros and Cons chart can be found here.

The next decision is whether you want a government insured or conventional loan. A government insured loan protects the lender against any losses that may occur. Federal Housing Administration (FHA) loans are available to all home buyers. FHA loans allow for lower down payments, but mortgage insurance can make monthly payments higher than conventional loans. The Department of Veteran’s Affairs has a loan available for veterans and the United States Department of Agriculture has a loan for "rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing." Conventional loans are uninsured and not guaranteed by the government.

Lastly, depending on the size of the loan, you may need a conforming loan or a jumbo loan. This decision is based on how much or how large of a loan is needed and what the risks are for the lender, or the value to loan ratio.

Different loans are available for first-time home buyers, or buyers who are still holding on to a previous property.

Still not sure? Look over this article from Realtor.com to find a loan that’s right for you. Or look at their guide for first-time home buyers here.

An Infographic about market trends as they relate to loans can be found here.

More questions? Give me a call. I can put you in touch with a great lender. 713-438-4747