What is the Best Home Financing Option?
Whether you're buying your first home or your next home, you will likely require some financing assistance to make the purchase. Few people have a couple hundred thousand or more stashed away for buying a house, so the norm for the South Florida real estate market is obtaining a loan. However, there are several different kinds of loans you can get, and each one has a slightly different structure and benefits. Discover the various types of loans available to you and determine what is the best home financing option for your next home purchase.
Qualifying for a Conventional Fixed-Rate Loan
Chances are, you're somewhat familiar with the first kind of loan, the conventional loan. This is a fixed-rate mortgage, and it isn't guaranteed or insured in any way by the federal government. With a fixed-rate mortgage of the conventional type, you obtain a specific interest rate and lock it in for the entire duration of your mortgage. For instance, if the interest rate is 5% when you buy your home, you'll still be paying just 5% interest 15 years later, even if the interest rates in the real estate market have skyrocketed or plummeted. Since the cost of living tends to rise, the fixed rate is typically beneficial if you plan to live in your new home for decades.To get a loan like this, you're going to need a number of things. First of all, you'll need a sizable down payment. How big the down payment needs to be depends on what the loan provider's requirements are. However, the minimum down payment amount is usually 5% of the total loan. For example, for a $200,000 home in the Miami or Fort Lauderdale area, you can expect to pay at least $10,000 down. It's a good idea to pay 20% down if you can, because if you pay less than 20% down, you're required to have private mortgage insurance on the home.Once you've got the down payment, you'll also need to pass through a credit check, which will let the lender know whether or not your credit score is high enough. You'll be asked about your income and other personal financial information as well. That's all necessary for the lender to know so that they can make an informed decision about whether or not to lend you the money.
Understanding Adjustable-Rate Mortgage Loans
A fixed-rate mortgage secures you the same locked-in interest rate for the duration of your loan, whether that period is 15, 20, or 30 years. However, there's another kind of loan, an adjustable-rate mortgage (ARM) loan. The interest rate starts out very low, but every so often it can change. Usually, the interval between interest rate adjustments is 1-5 years. It's an excellent money-saving option if you're not planning to stay in the home for more than a few years. You'll get to take advantage of the fixed-rate stage of the loan, and then you can sell and move on before the variable stage arrives. After the fixed-rate stage, it's difficult to predict how the fluctuation in market interest rates will change your monthly payment. You could end up paying significantly more per month than you had originally planned. That element of risk is why many home buyers opt for a fixed-rate conventional loan.
Considering Federal Housing Administration Loans
Another kind of loan is the FHA loan. These loans are doled out by the Federal Housing Administration, which is a segment of the U.S. Department of Housing and Urban Development. If you obtain an FHA loan, you don't have to put down as much money in advance. Many home buyers also find that it is easier to qualify for an FHA loan, since the lender is much more lenient with restrictions and requirements. That's why first-time home buyers find these loans so attractive. A minimum down payment only has to be 3% of the total cost. However, there is a statutory limit for FHA loans, which means that you can only borrow up to that limit.
Looking for VA Loans
If you or your spouse is a veteran, you receive extra loan benefits when you purchase a home. Although the U.S. Department of Veterans' Affairs does not lend money to individuals, it will guarantee mortgages if you obtain your mortgage through a qualified lender. Find out about qualified lenders and other aspects of the VA loan program so that you and your family can take advantage of the benefits to which you are entitled. You should be able to secure a loan with excellent terms and with little to no down payment. Make sure that you request eligibility first. Once you're accepted, you'll receive a certificate that you can use to apply for your VA loan.
Making Choices
Now that you know all about the options, it's time to decide which one is right for you. Are you an experienced home buyer with a sizable savings account and excellent credit, looking for a long-term family home? A conventional fixed-rate loan may be the perfect option for you.What if you are a first-time home buyer, perhaps going into the purchase with your fiancee or spouse? Maybe you're interested in a starter home, a smaller house that you'll be in for just a few years before you move on. If your credit score isn't perfect and you don't have much saved up for a down payment, consider an FHA loan or an ARM loan.Are you a veteran planning to buy a South Florida home? You'll definitely want to take full advantage of the VA loan program. It can save you money and give you more resources to use for your family and your own quality of life.