With home values increasing daily, it’s important for prospective home buyers to be in-the-know when it comes to the major categories of mortgages.
In recent years, the housing market has been trending upward with an increase in overall home values, a vibrant market, and exceptionally low interest rates.
There are four major categories of mortgages: fixed-rate, FHA mortgages, VA mortgages, and interest-only loans. Keep reading to make an informed decision when the right house comes on the market.
A fixed-rate loan is just like it sounds: the mortgage is paid over a fixed amount of time and at a fixed rate over the life of the loan, regardless of trends in the market or changes in interest rate after the fixed rate is determined. The length of these loans can be anywhere from 10 years to 50 years, though the most common are 15-year of 30-year mortgages.
2.FHA Mortgage Loans
FHA loans are insured by the federal government through the Federal Housing Association. These loans are a great option for first time home buyers who might not have a huge amount saved up for a down payment or those with less-than-desirable credit scores. Instead of requiring a large down payment, FHA loans include a charge for mortgage insurance, which is factored into the loan itself.
3.VA Mortgage Loans
Also issued by the federal government, VA loans are offered to active duty or retired U.S. veterans, as well as their spouses. There are several criteria used to determine who qualifies for these loans, including the number of years of service and whether or not there was an honorable discharge. Funded by conventional lenders and guaranteed by the U.S. Department of Veteran Affairs, the biggest advantage of VA loans is that there’s no down payment required. Interest rates for these loans also tend to be lower than the national average for conventional loans.
Although all home mortgages charge interest, interest-only loans are unique in that for a period of time the borrower pays only the interest. These types of loans are typically used for buyers who want a more expensive house than they can qualify for at the time of the loan. By paying only the interest for the first 5-10 years of the loan, the payment is lower and easier to afford. After the “interest-only” period is up, however, the payment jumps significantly to make up for the amount still owed to the principal of the loan. Interest-only loans can be dangerous, so you should consider them with extreme caution.
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