How Do I Know which is the Best Loan for my New Home?
February 20, 2016
When you’re looking at homes for sale in Midland GA and plan to finance your purchase, one of the first questions people ask is, “How do I know which is the best loan for my new home?” There are six common types of home loans and the one that’s right for you will depend on a variety of factors, such as where you live and how long you plan to be in the home.
Should I get a fixed-rate loan? Homeowners who want to pay a set amount for a set period of time typically prefer a fixed rate loan. This is the most common type of home loan. It prescribes a single interest rate and monthly payment for the duration of the loan, which is usually 15 or 30 years. Fixed rate mortgages work well for people who plan to stay in their home for a large portion of the life of their loan.
Why would I choose an adjustable-rate mortgage (ARM)? These loans are right for home buyers with lower credit scores, since they often can’t qualify for a fixed-rate loan. An ARM typically offers a lower interest rate than a fixed rate loan for a period of time, such as 5 or 10 years. After that, your interest rates and payments will adjust, once a year on average, based on a standardized index, such as the prime rate. These loans also work well for people who plan to move and sell their home before their fixed-rate period is up and rates start to change.
Who should apply for an FHA loan? If you don’t have a lot of money saved up for a down payment, you may want to apply for an FHA loan. Typical loans usually require a down payment of 20 percent of the home’s purchase price. But the Federal Housing Administration loan allows you to put down as little as 3.5 percent. Be aware that these loans come with several caveats. First, most loans are limited to $417,000 and don’t provide much flexibility. Rates are typically fixed, with 15 or 30-year terms. Buyers also must pay mortgage insurance at closing, or over the life of the loan. The amount owed is usually around 1 percent of the cost of your loan.
Is a VA loan best for veterans? Possibly. If you’ve served in the U.S. military and qualify for the loan, you can buy a home with no money down and no mortgage insurance requirements. A VA loan is right for veterans who’ve served 90 days consecutively during wartime, 180 days during peacetime or six years in the reserves. But the VA has strict requirements on the type of home you buy. It must be your primary residence and it must meet “minimum property requirements.”
Who qualifies for the USDA loan? Struggling families who live in rural areas and can’t afford to put any money down for a home should consider applying for a USDA loan. The government finances 100 percent of the home price and offers discounted interest rates too. However, your debt load cannot exceed your income by more than 41 percent. And like the FHA loan, you will be required to buy mortgage insurance.
What is a Bridge loan? This type is financing is also known as a gap loan, and is used when you’re buying a home before selling your previous residence. Lenders will wrap your current and new mortgage into one payment so that once your home is sold, you can pay off that mortgage and refinance. It’s best for homeowners with excellent credit and a low debt-to-income ratio, and who don’t need to finance more than 80 percent of the two homes’ combined value.
Check out the homes for sale in Midland GA today. And if you’re still not sure which mortgage loan is right for you, ask your Rose Anne Erickson Realtor® for advice and referrals to trusted lenders.Tags: new homes columbus, new homes georgia
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This post was written by Rose Anne Erickson
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