If you want to purchase a home and you're a first-time home buyer, you need to understand the common home financing terms. Knowing these terms will help you choose the best option for your home loan.
If you want to purchase a home and you're a first-time home buyer, you need to understand the common home financing terms. Knowing these terms will help you choose the best option for your home loan.
Adjustable and Fixed Interest Rates
A traditional mortgage can have an adjustable rate or a fixed rate. An adjustable-rate mortgage (ARM) starts with a low interest rate for a specific period of time and then adjusts according to the national lending index every year or quarter after that period. Your payment will changes according to those home financing terms. A fixed-rate mortgage has a rate that never changes. Its rate will not be as low as the initial rate of an ARM, yet your payments will be predictable.
You may also qualify for a hybrid loan, which is a combination of an ARM and a fixed rate loan. Typically, you get a fixed low rate for the first five to seven years of the mortgage and then the loan becomes an ARM.
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Conventional and Government Loans
You qualify for a mortgage based on your credit rating and the amount you have available for a down payment. If you can make a 20 percent down payment, a traditional mortgage is the best option. The more you can put down, the lower your monthly payments are. However, if you have a poor credit or little money for a down payment, a government loan may be your best option as requirements are less stringent.
Traditional lenders offer loans insured by government entities such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the U. S. Department of Agriculture. You and your prospective property must qualify for these programs.
Mortgages Lengths
Typical mortgage lengths are 10 to 30 years, yet some lenders will offer longer terms or non-traditional terms. The longer the length of your home loan, the more interest you pay over the life of your loan, so you want to opt for the shortest term possible. To compare mortgage quotes on 30-year loans to other terms, go to Reply! today.
Seller Financing
If you cannot get a traditional home loan, you may benefit from seller financing. Seller financing allows you to purchase a home from the current owner. However, you will generally pay a higher price for the house and get a higher interest rate than you would with a traditional mortgage.