Being a homeowner is one of the most beautiful feelings in the world. Having a place that you can call your own and spend the beautiful moments of life is such a heartwarming feeling that we all want to buy a home as soon as possible. But unfortunately, buying a home requires a lot more than just a desire to have a home.
Besides finding the best-suited option and dealing with a lot of paperwork, you also need money… a LOT of money. And you know, everyone doesn’t have it. The good thing is that having no money doesn’t mean an end to your dream of buying a home. You have several finance options in hand that can change your financial bottom line. But wait! There is more to the story. Choosing one, and the right financial choice can be a daunting task, significantly when it’s your first try.
If you are considering a loan for the first time, you will be checked for a number of factors. Especially if you have a poor credit history, most conventional banking institutions will be hesitant in offering you money. Contrary to this, if you have a strong credit history, all you will need to do is, provide details such as proof of income, identity card, and current address. Now that you have decided to consider a loan for purchasing a home, we will guide you through a list of options available out there:
1. Fixed-Rate Loan
This is a conventional loan with a fixed interest rate. As the name implies, you cannot bargain for a reduction in the interest rate. This kind of loan usually spreads over a long period, which is usually between 15 to 30 years. When people decide to purchase a new house, a fixed-rate loan is what occurs as the first thought in their minds. This kind of loan is the perfect option for first-time buyers who swoon over predictability. However, you need to make a down payment to avail of this loan. Once you settle to pay the down payment, the rest of the amount will be divided according to the number of months left. If you plan to live a certain part of your life in the new house, settle for this option. However, if you have plans to move to a new place after five years or a decade, this might not be the best option around.
2. FHA Loan
FHA, which stands for federal house administration, is an authority that enables you to pay a minimum amount of down payment in the beginning. Not to forget, people are obliged to pay 20% of the total amount as a down payment when they purchase a loan amount. Because such loans are backed up by the government, you can pay as little as 3.5% of the total cost of your house. This loan option is the right option if you can’t restrain your spending. In simple words, if your current savings are less and you can’t afford to make a hefty payment for the loan, an FHA loan will be a lifesaver. However, if you want to apply for an FHA loan, you will have to go through an archaic procedure of providing valuable information to the financial institution. On the other hand, people who are lucky enough to avail of the FHA loan also have to pay for a 1% mortgage insurance on the total cost of their loan amount.
3. Bridge Loan
Are you planning to sell your previous home? If not, stop right away! Also known as a bridge loan, this option is the perfect choice when you haven’t sold your previous property when buying a new one. When you decide to borrow this loan, lenders will weigh your current and future mortgage payments. This way, when you sell your previous home, it will be easier for you to refinance. Homeowners who possess a great credit history are advised to settle for this option. Collateral between the two houses is the easiest way for anyone to pay off their debts. A lot of people claim this loan option causes less stress and any emotional damage. Experts claim bridge loans can suffice for 80% of the total loan value. This means borrowers need to cater for only 20% of the remainder through whatever source of income they have. In simple words, the borrower is at the receiving end of the benefit.
4. Adjustable-Rate Loan
In this kind of loan, the interest rate is usually in coherence with a benchmark rate. In the beginning, when you seek this loan, all you need to do is pay a single low rate. After some time, when this period ends, the interest rate becomes flexible. However, this depends on the benchmark rate at that time. For instance, you might be paying a fixed rate for the first three months and an adjustable-rate for the next two years. This kind of loan is suitable for people who intend to save money with a lower interest rate. You are lucky if the benchmark remains low because it will eventually lower the total amount of interest for the rest of the time. Contrary to this, if the benchmark gets high, you might have to pay much higher than expected.
5. Conventional loan
This kind of loan is provided by private institutions and is not backed up by the government at all. Secondly, there are two kinds of conventional mortgages: nonconforming and conforming loans. A conforming loan means the total amount of the loan will be paid in the maximum period under a certain interest rate. Contrary to this, a non-conforming loan is one that is paid at a certain time. If you are new to this concept, keep in mind that the lenders will make sure you pay some amount as the private insurance on any conventional loan less than 20% of the cost price of the property. These kinds of loans prove to be a great choice for people who prefer to save money on the total loan amount. However, you need to have a good credit score to settle for this loan amount.