Selecting the right mortgage is central to the home buying process that's why it's so important to understand your options. You'll need to consider two things at the outset: which loan type best meets your home buying needs, and which loan term offers the ideal repayment schedule.
Loan Types
Most home loans fall into one of two general categories: fixed-rate mortgages and adjustable-rate mortgages (ARMs). You'll also encounter other basic loan type such as government loans and flexible credit solutions programs.
- Fixed-rate mortgages have interest rates that stay the same for the entire life of the loan.
- You will have predictable monthly payments throughout the life of the loan.
- You'll be protected from rising rates, so your principal and interest payments can never increase, no matter how high interest rates rise.
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- Adjustable-rate mortgages have interest rates that adjust periodically based on market conditions. The initial rate is fixed for an introductory period (usually one to ten years), and is typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually based on a market index, but can't go above a predetermined adjustment cap. Because of the lower initial rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed-rate mortgage.
- Government loans are offered by conventional lenders like IAM Loans Home Mortgage, but insured by the federal government. They come in two types: FHA and VA.
- FHA loans are backed by the Federal Housing Administration, and are designed to assist low-to-moderate income homebuyers by offering low down payment requirements and flexible qualifying guidelines.
- VA loans are backed by the Department of Veterans Affairs (formerly the Veterans Administration), and are available to qualified veterans and active-duty military personnel and their spouses. They offer many of the same features as FHA loans.
- Flexible credit solutions programs are designed for borrowers with less-than-perfect credit histories, excessive debt, or previous bankruptcy, foreclosure or tax delinquency.
Loan Terms
The “term” of a loan is the period of time you will spend repaying it. The most common loan term is thirty years, but you have other options as well, including twenty, fifteen, or ten years. Whether you'd be better off with a longer loan term or a shorter one depends on a number of factors, most notably your monthly income and long-term financial goals.
- Longer mortgage terms offer lower monthly payments, and are a good option if you're on a tight budget or would prefer to direct your monthly cash flow toward other investments or expenses.
- Shorter mortgage terms mean higher monthly payments, but allow you to repay the loan faster and save money on interest.
Whatever loan type or term you choose, IAM Loans Home Mortgage offers a wide variety of product options to meet your unique home buying needs. Our home mortgage consultants can help you find the right combination of loan features to support your financial goals. Contact us to get started today!
- Call a home Purchase expert at 1-800-800-6512 for a no-obligation consultation.
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