Getting a home loan can be a complicated process, but you can simplify it by gaining a little knowledge about the steps needed to navigate this task successfully and efficiently. Understanding your options is perhaps the best way to ensure that what you select is actually the ideal choice for your situation. Mortgages can be separated into different categories, including fixed rate, adjustable rate, balloon loans, FHA (Federal Housing Administration) loans, and VA (Veterans Agency) loans. Of course, other options exist for home loans. The ones listed here are just the common types that most people are able to qualify to obtain.
Understanding Different Types of Home Loans
Here is a brief explanation of the most common types of home loans:
. With a fixed-rate mortgage, the interest rate remains the same throughout the lifetime of the loan. It never changes.
. An adjustable rate mortgage offers an initial interest rate that is lower than what fixed-rate loans are featuring at the same time. After a pre-determined period of time, the interest rate increases, according to the terms of your loan agreement. As a result, monthly payments also increase.
. Balloon mortgages feature fixed interest rates with small initial monthly payments. At a predetermined point in time, the balance of the loan comes due.
. FHA (Federal Housing Administration) loans are intended for individuals who might experience difficulty obtaining a home loan in any other manner. The amount of money that can be obtained through this method is typically small.
. VA (Veterans Affairs) loans are designed for eligible active-duty service individuals, veterans, and surviving spouses. Although the amount of money that can be borrowed through this type of home loan is usually limited, required down payments are small or non-existent.
Interest Rates for Home Loans
Although interest rates offered by lenders are close in value, they differ sufficiently enough to make a difference not only in the cost of your monthly payment, but also in the amount of money that you end up spending over the lifetime of your home loan. Typically, you’ll want to compare the APR or annual percentage rates offered by the banks. The lowest percentage equals the smallest overall cost for the loan.
Getting a Loan
Each home buyer who is looking to get a loan must go through a few steps in order to become qualified. The first step is to figure out which type of loan you qualify to get. You can speak with a lender for assistance in determining that fact, or you can figure it out using your best judgement. The USA government provides a number of educational guides and useful tools related to obtaining mortgages for home buyers and homeowners. Perhaps one of the most helpful tools the site offers is the mortgage calculator, which can be used to help you figure out how much your monthly payments are going to be if you borrow a specified amount of money at a specific interest rate for a certain number of years.