Types Of Mortgage Loans You Should Know About Before Getting One
Buying your first house is probably one of the most significant decisions you will make in your life as it will change your life in many ways. Having your own home is a great achievement mainly if you worked hard to get it. You have a safe abode and a place to call your own. However, it also comes with a lots of responsibilities. You need to make sure you can make your monthly payments without much stress. You also need to maintain it so it will last with no trouble.
There are certain things you need to do before purchasing your own home through a mortgage. It is not just a matter of finding a mortgage broker Houston TX; it is also about learning on the different types of mortgage loans and choosing the best for you short-term and long-term.
Fixed Rate vs. Adjustable Rate
A fixed rate is as the name implies. The interest rate, as well as the payment, will stay the same for the entire duration of your loan. If you have a ten-year loan, you will have the same regular fee for the whole ten years. It is a good option if you want to stay on the safe side. You can ensure that the payment amount is something you can afford every month even when things get tough. With this, you are guaranteed to repay the loan on time and not risking your house.
On the other hand, the adjustable rate mortgage loans, better known as ARMs have a different interest rate. The rate can change or adjust from time to time. It means you can have a lower interest rate for a few years then it could go significantly higher on the next. Or it could be the other way around. If you are willing to risk your payment in the hope of obtaining a lower interest rate in the coming years, then you can choose this type of rate.
Conventional Loan vs. Government-Insured Loan
The main difference between a traditional loan and a government-insured loan is that the government does not back the first. It is also easier to obtain a conventional loan, but the government-insured loans are much safer. Let’s get to know about government loans.
If you are military service personnel or you are a family member, then you can take advantage of the loan programs offered by the US Department of Veterans Affairs (VA). Since the federal government guarantees it, the lender will receive reimbursement of any losses resulting to the borrower defaulting on the loan. The good thing about this type of loan is that the borrower may receive 100 percent financing for buying a house. It means there is no need for any down payment at all.
The Department of Housing and Urban Development (HUD), a department under the federal government offers an insurance program called the Federal Housing Administration (FHA) mortgage insurance program. It is provided to all types of borrowers. With this loan, the government is the guarantor for the borrower. It means the government will cover any losses in case the borrower defaults on the loan. It also offers low down payment, but you will need to pay for mortgage insurance which increases the monthly payments.