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  • Writer's pictureClare R. Okyere

Home Buying - Types of Loans

Educate yourself on the various types of loans available during the home buying process.

Are you new to the world of home buying? Learn some foundational loan information to help you feel at ease during this process.

Ready to begin house hunting? Financing options play a big part in this process. Educate yourself on the types of loans available. Your licensed mortgage broker will know the details of any and all loans and financing guidelines. However, giving yourself some baseline knowledge will increase your confidence during this process and make it as low-stress as possible.

Fixed-Rate Loan (Conventional Loan) Odds are high that you will discuss a #conventionalloan with your mortgage broker. A conventional loan is the most common type of fixed-rate loan. With a fixed-rate loan, you will have a set interest rate and monthly payment over the life of the loan. This most commonly spans 15 or 30 years.

Points to Consider:

* Stable & Predictable - payment stays constant even as interest and market rates rise and fall

* Generally requires a 5% down payment (3% for qualified first-time homebuyers)

* Typically well suited for home buyer planning to stay in the home for an extended period of time

* Individuals with credit scores as low as 640 may qualify

* Conventional loans are capped at $647,200 (as of 1/10/2022); however, there are other fixed-rate loan options (such as jumbo loans) for borrowers looking to finance over this amount

Adjustable-Rate Mortgage (#ARM) Unlike the stability of a fixed-rate loan, an adjustable-rate mortgage will change over the life of the loan. In most cases, an ARM will have lower interest rates for a set period of time - likely the first 5 to 10 years. However, once that set term is up, the interest rate will adjust to reflect current market rates. This in turn will affect your monthly payment. Typically, this adjustment to current rates will take place once per year over the remaining life of the loan.

Points to Consider:

* May be a good fit for a buyer with a low credit score who can't qualify for good rates with a conventional loan

* May be well suited for a buyer who plans to move again before the termination of the initial 5 to 10 year low-interest term, and who wants to take advantage of these up-front lower interest rates. Since most people only stay in their mortgage for 5 to 7 years, many prefer to take advantage of the lower upfront rates.

* With an ARM, more of your payment goes toward the principal, so you pay down your mortgage faster.

* ARMs no longer feature pre-payment penalties, so you can easily refinance to avoid worrying about a higher future payment.

Federal Housing Administration (#FHA) Loan FHA loans are backed by the federal government, which means they typically offer much lower down payments than a conventional loan. An FHA loan will require as little as 3.5% down.

Points to Consider:

* May be a good fit for buyers with limited money to put toward a down payment

* Fixed-rate loans, with either 15 or 30 year term

* Credit scores as low as 580 may qualify

* Loans typically capped at $420,680 for regular one-unit FHA loans (as of 1/10/2022)

* Buyers using an FHA loan must pay mortgage insurance up front and over the life of the loan

* Sellers may contribute up to 6% towards your closing fees

Veterans Affair (VA) Loan Individuals who have served in the United States military may be eligible for a #VAloan. If you qualify for a VA loan, there is no down payment and no mortgage insurance requirements.

Points to Consider:

* Available for individuals who have served 90 consecutive days during wartime, 180 consecutive days during peacetime, or six years in the reserves

* VA has strict requirements on which homes are eligible to be purchased with a VA loan

* No down payment is required

At O Capital Group, we make home loans easy!

Call today: (602) 492-8930

USDA Rural Development Loan If you are looking to purchase a house in a rural area, you may be eligible for a USDA Rural Development Loan. Interest rates for this loan are typically lower than conventional loans. This government-backed loan may cover 100% of the loan amount. This equates to no down payment for borrowers.

Points to Consider:

* Available in some rural areas

* Debt to income ratios are stricter with USDA loans than with other loan types

* These loans do require mortgage insurance

* Special low rates for qualified borrowers – $125,000 minimum loan amount

* 100% financing – no down payment required

* Seller credits may help pay for closing fees

* Potentially roll closing fees into your monthly payment

Take Your Next Steps Today

Talking to a mortgage broker today will bring you closer toward the reality of homeownership.

If you are thinking about buying a home in the future, talking to a licensed, professional mortgage broker is your first step. They can provide additional details on any of these loan options. They can also give you an honest assessment of where you currently stand, and suggest some steps to make home buying a reality.

At O Capital Group, we are happy to provide a no cost phone consultation. Call (602) 492-8930 today to connect with someone who can help you learn more.

Or, get started on your own through Blink - a safe, secure online loan application you can use on your own time.

Keep Us Posted On Your Journey

What type of loan do you have currently or are you considering? Let us know any pros, cons, or questions you may have. We'd love to learn from your journey! Leave us a comment below.

At O Capital Group, we make home loans easy!

Call today: (602) 492-8930

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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