If you’re currently looking for houses to call your own, it might also only be right for you to start shopping for home loans as well. Houses are a huge deal and cost a fortune. Whether you look at designing the exteriors the way you wish or you check the financing aspect and all the paperwork involved in owning a house, it can all be overwhelming.
Before jumping right into applying for a home loan and filling out an FHA mortgage application online, it is best to understand the many types of home loans available today, and the popular ones that people look at applying for.
Remember that these kinds of arrangements are deals that dictate your spending habits in the coming future so make sure to consider where you choose to live, how long you envision yourself in that particular location, and what career path or things you will be pursuing in the foreseeable distance.
A home loan many people are familiar with is a fixed-rate loan. These loans typically run for a decade and five years up to three decades in total and are usually paid for on a monthly basis. Fixed-rate loans are designed for people who wish to permanently settle in one area and do not see themselves moving for the entire duration of the loan, if not at all anymore.
The arrangement is that the borrower pays for a given amount for X number of years, regardless of the economy’s instability and the turbulence of interest rates. The rate of the loan is fixed. Hence, the name.
Almost the opposite but not quite is the Adjustable Rate Mortgage loan. ARM commonly has lower interest rates for the first couple of years compared to fixed-rate loans. After about 5 to 10 years, the established interest rates will ascend or descend depending on the current interest rates and so will your required payment.
More often, this is ideal for those whose credit scores aren’t stellar or commercially impressive, as these types of people don’t usually score friendly rates on fixed-rate loans. This arrangement may also fly for borrowers who eye relocation soon before then the fixed-rate time frame of the loan is over and the fees start to oscillate.
A more amicable option compared to the two is a Federal Housing Administration loan. FHA loans are insured by the government to protect lenders should a borrower flake. That said, the standards for qualifying for this specific loan program isn’t as strict. This is designed specifically for people who have trouble attaining commercial loans because of a lower FICO credit score.
Conventional loans may require a 5% to 20% down payment, but an FHA loan may be kind enough to ask only a 3.5% down payment from you. Given that you meet the requirements, building home equity sooner should not be a problem. There are numerous FHA loans available to suit your liking, too.
Similar to commercial mortgage loans, applying for a loan under the FHA requires the same process but with minor differences. There will be two sets of criteria that will look into your qualifications: one from the Department of Housing and Urban Development and the other from your lender.
Application forms are patterned and regulated, so they should be the same anywhere you are in the country. Sooner or later, you will also have to fill out a Uniformed Residential Loan application form with your lender.
One of the biggest differences between commercial loans and FHA loans are the fees involved in mortgage insurances. The FHA requires a borrower to pay for mortgage insurance all throughout the duration of the loan, while conventional loans require that you pay for this only until a certain percentage of the loan is already paid for.
This is due to the fact that conventional loans aren’t backed up by the federal government. This reason is also exactly why banks and other commercial lenders are only able to extend loans to people with higher credit scores. That said, it’s still a win-win for everyone involved as people are most likely going to apply for a loan they deem best for them or suit whatever circumstance they’re in.