Hey everyone, I’m Amanda from Movoto Real Estate and we’re here to help you along an exciting home-buying journey.
Last time, we talked a little bit about the very beginning steps of house hunting, so this time, we’re going to give you a quick crash-course in mortgage loans.
What Kinds of Mortgage Loans Are Available?
There are a whole lot of loans you can choose from when it comes to buying a home, but there are four main types you should know about: a fixed-interest rate, an adjustable-rate, an interest-only, and an FHA.
Which Loan Is Right For Me?
There’s not always a strict right or wrong when it comes to choosing your loan, but there are some ways to help narrow it down. Your monthly budget, your credit score, and how long you plan to live in the home are all factors that can help you choose.
What Is A Fixed-Interest Loan?
A fixed-interest loan is one of the most common types of loans. Lots of people prefer these because they know exactly how much interest they’re going to have to pay over the life of the loan.
Fixed-interest loans are good because they offer a variety of loan lengths to choose from and the interest payments are tax-deductible. And because the interest rate never changes, payments remain the same every month. People like the predictability of the payments when it comes to monthly budgeting.
What Is An Adjustable-Rate Mortgage?
With an adjustable-rate mortgage (or ARM), your monthly payments actually can fluctuate. Since the interest rate can go up and down throughout the life of the loan depending on the current market, your monthly budgeting could be thrown a little bit off skew.
But your interest rate won’t ever totally skyrocket, because there are interest rate caps.
Some people really like ARMs because they usually start out with a lower interest rate than a typical fixed-rate loan. So if you know your income will increase over the next couple of years, or if you know you’ll only be in the loan for a few years, it could could be the loan for you.
What Is An Interest-Only Loan?
An interest-only loan is exactly what it sounds like—you’re only making payments on the interest of your loan, not the principal, for a fixed period of time.
The state of the interest rate really depends on what kind of interest-only loan you get, you could have one with an interest rate that varies month-to-month or you could have one that’s fixed for up to ten years.
Although you’re not building up any equity while you’re only paying interest, you will have a lower monthly payment than with a fixed-rate or an ARM loan. So this might be good for you if you know you’re going to relocate and sell soon, and never really intend to pay off your mortgage completely.
What Is An FHA Loan?
An FHA loan is awesome if you don’t have a lot of cash to put down up front. Most loans require you to put 20 percent down and a have good credit score, but FHA loans allow you to put down as little as 3.5 percent and have a credit score as low as 580.
These loans are insured by the Federal Housing Administration, which will pay your loan if you default on it by not making your payments, but that does come at a price to you in the form of paying a monthly mortgage insurance premium, or MIP.
What’s Next?
So we hope we’ve given you a better idea of some of the main mortgage types that are out there, but for more detailed information, visit out our blog at Movoto.com/Foundation.
Be sure to check out Part 3 of this series to learn all about finding the perfect agent to work with.
See you next time!
