Different Types of Home Loans

You've decided to take the plunge and you are ready to buy a home at the Lake of the Ozarks. Now all that's left to do is find the right home, get a mortgage loan, close on the sale, and move in... right?

 Well, more or less. Buying a home can be a little more complicated than that, but the process can run smoothly with the guidance of an experienced Lake of the Ozarks real estate agent and mortgage lender. Today, the team at Gattermeir Davidson Real Estate is here to help you gain some background information on the different types of home loans available and how to decide which one could be right for you.

Fixed Rate Mortgages

Fixed rate mortgages are exactly what their name implies: they have a fixed interest rate throughout the entire term (typically fifteen, twenty, or thirty years). The benefit to fixed rate mortgages is that you can trust the interest rate to remain consistent the whole time you are paying back your loan - your monthly payment will never increase. The drawback to fixed rate mortgages is that the interest rate may be slightly higher than those of other mortgages.

Adjustable Rate Mortgages

Adjustable rate mortgages (ARM) have a set interest rate for the first few years (generally three or five years), but then the rate will adjust to match the current market. The upside to ARM loans is that their initial interest rates are usually much lower than those of fixed rate mortgages. The downside to ARM loans is that after the initial period, the interest rate will typically rise and the monthly payment will go up.

Conventional Loans

Conventional loans, like their name suggests, are pretty much "by-the-book" mortgage loans. They typically require a 20% down payment, and borrowers will most likely have to pay for Private Mortgage Insurance (PMI) in addition to the principle and interest if they are unable to put 20% down upfront. Because they are backed by private lenders, they generally do not require as much paperwork as government-backed loans (see below). Conventional loans are available in both fixed-rate and adjustable-rate mortgages.

Government-Backed Loans

Our federal government wants to encourage our citizens to pursue the American Dream. In order to help make this dream a reality, the government offers three types of mortgage loans: FHA, VA, and USDA.

FHA Loans
The Federal Housing Association (FHA) offers home loans for both first-time and repeat buyers. Because these lenders are backed by the government if the borrowers default on the loan, they are usually less selective about their applicants than conventional lenders. The biggest advantage to FHA loans is that home buyers may be able to qualify for a down payment as low as 3.5%. The drawback to these loans is that borrowers will still be required to pay for PMI until they have paid back 20% of the principle.

VA Loans
VA loans are funded by the U.S. Department of Veteran Affairs and are only available to U.S. veterans, active-duty personnel, and (in some cases) their surviving spouses. The biggest appeal these loans offer is 100% financing - borrowers are able to take out a loan for the full amount of the home, without providing any money upfront. Not only that, but these loans do not require the traditional private mortgage insurance.


USDA Loans
USDA loans are backed by the U.S. Department of Agriculture, and are intended to help make homeownership possible for low-income families in rural areas. Buyers who do not qualify for conventional mortgage loans may be able to qualify for USDA loans. In order to qualify, the home the borrowers are purchasing must be in a county that has been zoned as "rural," and the buyers' combined household must not be higher than 115% of the adjusted area median income. Like VA loans, USDA loans also offer 100% financing. Your mortgage lender will be able to help you determine whether or not you meet these standards.

Happy House Hunting!

We hope that this helps you in your home buying process. If you are ready to tour some of the homes for sale at the Lake of the Ozarks, give us a call -- we would be happy to show you around!

 Stay connected with Gattermeir Davidson Real Estate, LLC!

2011 REALTOR Salesperson of the Year
Missouri Association of Realtors

Gattermeir Davidson Real Estate, LLC
752 Bagnell Dam Blvd., Suite A
Lake Ozark, MO 65049

Office | 573.365.1555
Fax | 573.365.1766
Location: Lake Ozark, MO 65049, USA

Comments

  1. UnknownJuly 10, 2018 at 2:15 AM


    Thank you for sharing such great information. It has help me in finding out more detail about housing loan emi

    ReplyDelete

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