Whether you are purchasing a home, property, or commercial business space, one of the first things you will likely have to figure out is which type of loan to secure. Since there are so many different loan types and mortgage acronyms to learn about, it can get a little confusing – especially for first time buyers.
Here are a few different types of loans with pros and cons so that you can make an educated decision about which is best for you.
When comparing different types of home loans, one of the first types you will probably consider is a conventional loan. Conventional loans are the most common type of home loan today, but that doesn’t necessarily mean they’re the best.
These loans are provided by banks, credit unions, or other financial institutions, and are not backed by any government agency. Typically they require a credit score of at least 660. Conventional loans are best for people with regular income who are able to make a down payment of at least 3%.
A fixed-rate loan is a loan that has interest rates which remain consistent over time and never increase. This can be an enticing option for people who like predictability and are comfortable paying that fixed amount for years to come.
The downside though is that with these loans it will take much longer to build equity. The minimum credit score to be considered for a fixed-rate loan is typically 650.
An adjustable-rate mortgage (or ARM) is a loan with interest rates which will fluctuate up and down over time, based on market standards. For a certain period of time, such as 5 or 10 years, these loans will have a fixed rate.
After this period, the interest will likely increase. Adjustable-rate loans are good for people with credit scores between 620-680 who don’t plan on living on the property long enough for the rates to rise. People with long-term employment and good income also may be good candidates as they will be able to afford their rates rising in the future.
Federal Housing Administration
Federal Housing Administration (or FHA) loans are attainable for people with lower credit scores (580 and up) and who can only put down a small down payment. FHA loans allow the buyer to borrow up to 96% of the value of the property. They are federally backed and easier to apply for than conventional loans. They are a great income for those who struggle financially but still want to buy.
With the proper research, you will find the best loan for you and get into the home or business space of your dreams in no time.