Looking to make that first apartment (home) purchase? You’re probably shopping for the best mortgage loans, well considering the various options out there this article details the Different Types of Mortgage Loan For Apartment (Home) Purchase available for you.
There is a wide range of factors that determine the type of mortgage loan for apartment (Home) purchase that suits you, namely, how long you intend to stay in the apartment, the area you live among other variables. All this have the possibility of improving your position and loan amount. Making the best choice can save you a lot of money on your down payment, fees, and interest.In this article we talk about:
There are different types of mortgage loan for apartment (home) purchase;
- Conventional mortgage loans
- Fixed-rate Mortgage Loans
- Adjustable-rate Mortgage
- Government-insured loans
The various mortgage loans have different requirements as to the down payments, loan amount, interest rate and mortgage. All you have to do is read through this article as we detail the different types of mortgage loan for apartment (home) purchase best suited for you so you can make the right choice. The type of mortgage loan that you choose could affect your monthly payment.
Conventional Mortgage Loans
Conventional mortgage loan is a loan not insured by the federal government. This type of mortgage is classified into two namely; conforming and non-conforming loans.When the loan amount falls within maximum limits set by the Federal Housing Finance Agency it is said to be a conforming loan. Therefore mortgage loans that do not meet this limits are considered non-conforming loans.
Conventional loans are ideal for borrowers with strong credit, a stable income and employment history, and a down payment of at least 3 percent. It can be used for a primary home, second home or investment property. With conventional loans home buyers can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac.
Generally, lenders require you to pay private mortgage insurance (PMI) on many conventional loans when you put down less than 20 percent of the home’s purchase price.
Requirements For Conventional Loans
- You will need to show valid documents to confirm your income, assets, down payment and state of employment
- Your lender is likely to require you pay PMI if your down payment is less than 20 percent of the sales price
- Minimum FICO score of 620 or higher often required (the same applies for refinancing)
- Higher down payment than government loans
- Must have a debt-to-income (DTI) ratio of no more than 45 percent to 50 percent
Fixed-rate Mortgage Loans
Home buyers who plan on staying permanently in their home may be best suited for this conventional loan. A fixed-rate loan will require a down payment. This type of mortgage loan are for home buyers who do not plan on moving for the duration of their mortgage.
Fixed-rate mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years, 20 years or 30 years. If you plan to stay in your home for at least seven to 10 years, a fixed-rate mortgage offers stability with your monthly payments
Requirements of fixed-rate mortgages
- Generally need to pay more interest with a longer-term loan Takes longer to build equity in your home
- Interest rates typically higher than rates on adjustable-rate mortgages (ARMS)
This type of mortgage is best suited for Home buyers with lower credit scores, since people with poor credit typically can’t get good rates on fixed-rate loans, an adjustable-rate mortgage can reduce those interest rates down enough to put home ownership within easier reach. Adjustable rate mortgages can save you a substantial amount of money on interest payments. Unlike the stability of fixed-rate loans, adjustable-rate mortgages have fluctuating interest rates that can go up or down with market conditions.
Many Adjustable rate mortgage offers have a fixed interest rate for a few or a few years before the loan changes to a variable interest rate for the remainder of the term. It is advisable to look for an offer that gives you the rate of increase so you have any issues when your mortgage resets after the initial fixed rate. However, you must be comfortable with a certain level of risk before getting an adjustable rate mortgage. It is best for home buyers who don’t plan on staying more than a few years in their home before making another purchase in such a situation, adjustable rate mortgage loans can save you big on interest payments.
Government-Insured Mortgage Loan
The U.S. government plays a huge role in helping Americans become homeowners although it is not a mortgage lender.
With the help of these government agencies Americans can secure mortgages:
- Federal Housing Administration (FHA loans)
- U.S. Department of Agriculture (USDA loans)
- U.S. Department of Veterans Affairs (VA loans)
FHA Loans: Home buyers with low savings for a down payment fit the criteria for an FHA loan. The FHA has several requirements for mortgage loans. FHA loans are fixed-rate mortgages, with either 15- or 30-year terms. Buyers of FHA-approved loans are also required to pay mortgage insurance either upfront or over the life of the loan which hovers at around 1% of the cost of your loan amount.
Borrowers need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment; however, a score of 500 is accepted if you put at least 10 percent down. While typical home loans require a down payment of 20% of the purchase price of your home, with a Federal Housing Administration, or FHA loan, you can put down as little as 3.5%. That’s because Federal Housing Administration loans are government-backed.
USDA Loans: Another government-sponsored home loan is the USDA Rural development loan, which is designed for families in rural areas. The government finances 100% of the home price for USDA eligible homes in other words, no down payment necessary and offers discounted mortgage interest rates to boot. You must purchase a home in a USDA eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes.
VA Loans: VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. If you’ve served in the United States military, a Veterans Affairs or VA loan can be an excellent alternative to a conventional loan, If you qualify for a VA loan, you can score a sweet home with no down payment and no mortgage insurance requirements. VA loans are for veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves. Because the home loans are government-backed, the VA has strict requirements on the type of home buyers can purchase with a VA loan: It must be your primary residence, and it must meet “minimum property requirements. Government issued loans help you finance a home when you don’t qualify for a conventional loan, it is readily available to first time home owners and repeat buyers you also don’t need a large down payment to access it. Government-insured loans are your best bets if you have low cash savings or low credit and can’t qualify for a conventional loan.
Requirements Of Government Insured Loans
- Mandatory mortgage insurance premiums on FHA loans that cannot be canceled in some cases.
- Could have higher overall borrowing costs.
- Expect to provide more documentation, depending on the loan type, to prove eligibility.
When making a choice on the Different Types of Mortgage Loan for Apartment (Home) Purchase carefully consider your financial situation. With the help of this article you can make the best choice most likely to help you reach your goals.