Last Updated on September 15, 2022 by admin
Buying a home is a major milestone in most people’s lives. The dream of private property ownership is tied to the American dream as a whole, so when the moment comes that you can own your own home, it’s one to truly relish.
Of course, if you haven’t purchased a home before, there’s a lot to get familiar with. You’ll need to understand the different types of home loans if you want to make the financial element of your home purchase run smoothly.
What are the types of home loans out there and which will be right for you? Read on and we’ll walk you through what you need to know.
Table of Contents
Conventional Loans
The most common type of home loan you’ll find in the money-lending market? The aptly-titled conventional loan.
This kind of loan is not backed in any way by the federal government, but many do conform to standards put in place by the Federal Housing Finance Agency.
The advantages of a conventional loan can be numerous. The borrowing cost for this type of loan tends to be lower than other mortgage options, even when interest rates are high. With a conventional loan, you can also negotiate so that the seller will help to pay for some of the closing costs.
The only disadvantage is that you must have a financial background in order to score this kind of loan. You’ll need a strong credit score, financial history, and the ability to put down a large down payment to secure this kind of loan.
If you’re able to do that, this will probably be the deal for you.
Government-Backed Loans
Sometimes, the federal government steps in to make it a little easier for individuals to secure a mortgage. Government-backed loans are those where, if the payer fails to meet their monthly payments, the government will pay the bank on their behalf.
While they still may lose ownership of the home, the guarantee of a government payment will allow mortgage lenders to take more risks initially.
There are a number of different government loans worth looking into depending on your situation and background. You can read more info on the types of loans to get an idea of which might be best.
Jumbo Loans
Going to put money down on a mansion or high-priced home? You might need something bigger than a conventional loan will allow for. This is where the jumbo loan comes in.
These are loans that do not conform to the standards set down by the FHFA. They often come in totals much higher than the limitations standardly set.
While the interest rates for these types of loans tend to be competitive, the down payment required can often be quite massive. You’ll need a lot of money in the bank to get this kind of loan.
Understanding Different Types of Home Loans
If you’re looking to put some money down on a property in the near future, you’ll want to take the time to understand the different types of home loans. The above information can help walk you through the most popular.
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