Buying real estate with a mortgage:
Is it time to buy your first house? Or perhaps you have owned several homes and are buying another. Whether you intend to buy a home and flip it in a short time or buying your dream home that you plan on living in the rest of your life there are several types of home mortgage loans available to consider.
Most Common loan type
By far the most common home loan is a fixed-rate loan. These types of loans have a fixed interest rate for the life of a loan. Mortgages on a fixed rate loan are typically for 15, 20, or 30 years in duration. These types of loans are great for purchasers who desire regularity and don’t plan on moving any time soon. The increase or decrease in interest rates over the duration of the loan won’t change the terms of the loan. If you plan on only being in your home for a short period of time you may want to consider other available options.
Adjustable rate mortgage (“ARM”)
This type of loan likely includes interest rates lower than those available for fixed-rate loans. Generally, an ARM loan is taken out for five, seven, or ten years. If you stay in the home without refinancing beyond the term of the ARM the interest rate will likely increase. The monthly payment on the loan will increase as well. ARM loans are attractive for those who don’t plan on staying in the home for long. Buyers with lower credit scores may find this type of loan attractive as well. A lot of people with lower credit scores can’t get good rates on a fixed loan which may make the ARM loan a good choice for them.
Federal Housing Authority (“FHA”)
An FHA loan may be attractive to those buyers who can’t put down the typical 20% required to purchase a home with a regular mortgage. An FHA loan may allow buyers to purchase a home with as little as 3.5% down. This type of loan may be suitable for those that don’t have large savings accounts that allow for a sizeable down payment on their home purchase. There are down sides to an FHA loan. Most loans are limited to approximately $417,000. This type of loan also includes paying mortgage insurance which may be paid upfront or over the duration of the loan. The cost of the mortgage insurance is typically around 1% of the loan.
Veterans Loans (“VA” loan)
This type of loan is available to those who have served in the United States military. VA loans may be an attractive alternative to a traditional loan for those veterans who have served at least 90 days consecutively during war time, 180 days during peace time, or six years in the reserves. VA loans have strict requirements as to the type of homes that may be purchased. The home must be used as your primary residence and it generally can’t fall into a fixer upper type category. Once you qualify for this type of home you can buy a great home with no money down and no mortgage insurance requirements.
Bridge loan (aka “gap loan”)
A bridge loan may be an option for those who are purchasing and closing on a new home before selling or closing on your current home. The lender will join your current and the new mortgage into one payment. After your home is sold the old mortgage is paid off and then generally you refinance. This type of loan may be right for those with excellent credit scores and low debt to income. Utilizing a gap loan may allow for a simple way of moving between two houses without the typical stress associated with selling one home, buying another and moving all in a short period of time.
Remember, there are a variety of home mortgage loans options available to help with your purchase.