This blog offers a concise yet informative overview of the four common types of home loans. It simplifies what can be a complex subject and makes it accessible for readers. Whether you're a first-time homebuyer or looking to refinance, understanding these loan types is essential. This blog serves as an excellent starting point to help readers navigate the world of home financing. Well done!
Have a super fantastic week!
Joe Jackson, Realtor-KWCP
Choosing a home to buy is only half the battle. You still have to pay for it! While that’s an obvious statement, the way you pay for your new home is just as, if not MORE important than any other step in the process. And just like the options you get when you’re house shopping, you also have options when it comes to loans.
Here are the 4 most common types of home loans.
#1 A fixed rate mortgage, or conventional home loan This is the most common type of home loan you’ll find. Around 90% of buyers will choose a fixed-rate mortgage, usually at a 30 year term. Fixed rate mortgages benefit from, you guessed it, a fixed interest rate over the life of the loan. Meaning you can lock in a good rate and keep it until the loan is paid off. You can also find 20 and 15 year terms for fixed rate mortgages, but you will end up with a higher monthly payment the shorter the term is.
#2 An adjustable rate mortgage, or ARM Which is exactly what it sounds like. It’s a mortgage that has an interest rate that changes over time. Your initial rate is usually dubbed a “teaser” rate, since it’s seductively low in the beginning, but will always rise above fixed rates if held long enough. ARMs are usually only advantageous when the homeowner plans to move within a short period of time.
#3 Jumbo Loan Jumbo mortgages are loans that exceed the amounts set annually by the Federal Housing Finance Agency. You need a jumbo loan if the property you want to buy exceeds $548k in 2021. Jumbo loans can also come with other fees and requirements since the borrowed amount is so high. And finally,
#4, an FHA Loan. Which is a loan that is guaranteed by the Federal Housing Administration and issued by a government-approved lender. They are designed to help low to moderate income borrowers, and allow down payments as low as 3.5% To qualify, you need to have a debt-to-income ratio of 50% or less. The FHA also requires borrowers to pay for mortgage insurance to protect the lender in case of default.
This is not an exhaustive list of available loans, but they ARE some of the most popular. And remember, if you’re looking to buy or sell, your first step is getting preapproved. Its a simple process and I have a list of trusted lenders that have great rates. Shoot me a message if you have any questions!
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About the author: The above Real Estate information was provided by Lori Mode. Lori can be reached via email at Lori@ModeREGroup.com or by phone at 916-405-5737. Lori has helped people move in and out of Elk Grove and surrounding Sacramento areas for the last 37 years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!