While home buying is a quintessential part of the American dream, as many as 63% of home buyers have serious regrets post-purchase. Many of these regrets are tied to hidden expenses that come with homeownership and various types of home loans.
To help you avoid feeling bad about your purchase, our team has written out this post to quickly introduce you to five of the most common types of loans that you’re likely to bump into when you’re house shopping. By reviewing the options below, we’re confident that you’ll become a more informed and less remorseful property owner.
1. Fixed-Rate Mortgages
Anytime that you’re browsing a big-bank, ING home loan or other name-brand loans, the first product that you’ll see is a fixed-rate mortgage. Fixed-rate mortgages are popular because they offer the most transparency to home buyers.
A fixed-rate mortgage tells you exactly how much interest you’ll pay each month over the life of your loan. That means, no matter how the economy changes, you can be sure that your home payments will remain consistent.
2. Adjustable-Rate Mortgages (ARM)
Adjustable-rate mortgages are another popular loan product that offers people more volatility in their payments in exchange for access to lower interest rates.
For example, an adjustable-rate mortgage may be 3% while a fixed-rate mortgage might be 4%. If you opt-in to the adjustable-rate mortgage, you’ll pay less than you’d pay on a fixed rate but as the economy swings, that 3% mortgage may go up to 6% or 7%.
With careful planning and a strong knowledge of housing markets, buyers can leverage adjustable-rate mortgages effectively.
3. Interest-Only Mortgages
Interest-only mortgages are among the most unique types of home loans because they only ask you to pay the interest portion of your loan each month rather than interest plus principal. At the end of your loan term, you’ll be asked to pay all of your loan’s principal in a lump sum.
This loan type is used by investors that prefer to accrue interest on their principal payments in private ventures as opposed to forking it over to the bank every month.
4. Specialty Loans
Specialty loans are mortgages that are offered to certain classes of people. Two popular renditions of specialty loans include VA loans (which are offered to veterans) and FHA loans (which are usually leveraged by first time home buyers).
VA loans offer $0.00 down payments and FHA loans offer flexible down payment and credit requirements.
5. Jumbo Loans
Most loans that are issued are resold by banks to the federal government. Jumbo loans are loans that are too big to resell and consequently, require lenders to hold them.
Because lenders can’t sell your loan to the government, interest rates are much higher which affords lenders additional protection against you defaulting.
Now That You Know More About Types of Home Loans, Pick One That Makes the Most Sense
There are types of home loans out there to suit every buyer. We hope that you now feel more knowledge regarding which loan might be best for you.
For more information on all things money and real estate, check out additional content on our blog!
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