Before seeking a mortgage loan, a few key questions may crop up. What are the different types of mortgage home loans available? Which types of home loan is the best for first-time home buyers? How do these programs work?
For a prospective home buyer, these questions are no less than a complex puzzle. The good news for home buyers is that the government is gradually phasing out most of the ‘high-risk’ mortgage loan programs. To some extent, this was due to the change and execution of new regulations. Also, stringent conventional loans have contributed to the growing trend of flexible loan programs. Borrowers can get some flexible and convenient mortgage home loan options. Some of them are below:
- Fixed-Rate Mortgage Loans: This type of loan offers stability and predictability in the long run. This is why this loan is quite popular among home buyers. Under this type of loan, the interest rate and the monthly payments stay at the same level during the entire term. It’s even applicable for borrowers whose loans get extended for 10 or more years. There are no surprise elements in this kind of loan as borrowers always know about the interest rate and monthly payments. However, the drawback of this loan is that the rate of interest is higher than other loan options. These loans can be obtained for FHA (government-insured) and conventional (non-government-insured) forms.
- FHA Home Loans: This loan is popular among the first time buyers. This program is administered by the Federal Housing Administration (FHA), and falls under the Department of Housing and Urban Development (HUD). FHA loans can be obtained in three different forms: an FHA-insured fixed interest rate mortgage with a 30-year term, and a FHA-backed five-year hybrid adjustable-rate mortgage (ARM).
- VA Home Loans: This is another type of government-supported mortgage financing. These loans are partially guaranteed by the Veterans Administration (VA). VA home loans are generated by regular lenders in the private sector and are usually limited to military service members and their families.
- USDA Loan Program: This loan program is also referred to as a rural housing loan. Although this loan offers 100 percent financing, it is confined to low and moderate income borrowers in specific rural areas.
All the home loan programs mentioned have some pros and cons, and borrowers need to understand these aspects, each option thoroughly. A knowledgeable loan officer assigned by a lending firm can guide them properly.