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Are you a prospective homebuyer? If yes, researching the ideal financing option is as important as choosing the neighborhood you want to live in. According to the World Property Journal, foreclosure filings spike at the rate of 34% yearly! For this reason, consider working with experts to be on the safe side. Or better yet, check the following home financing options.
Conventional Mortgages
Conventional mortgages are increasingly getting popular. According to Credible, you’ll need a minimum credit score of around 620, at least a 3% down payment, and a debt-to-income ratio that’s 43% to qualify for this mortgage. Typically, a downpayment of 20% or fewer means paying for private mortgage insurance (PMI). Opting for a conventional mortgage enables you to benefit from lower mortgage interest rates with a larger downpayment.
Fixed Rate Mortgages
A fixed-rate mortgage means your home loan will have a fixed interest rate for your entire loan. According to NerdWallet, the loan typically runs for 10 to 30 years with a fixed rate of around 7.03%. Therefore, you should work with experts to ensure the terms are within your budget before committing to such a long-term arrangement. Ideally, you want to choose affordable interest rates. If you’ve settled on your “forever” home, a fixed-rate mortgage arrangement is best for you as it makes budgeting easy with predictable payment tranches.
Adjustable Rate Mortgages
An adjustable-rate mortgage has a fluctuating interest rate during the loan period. Usually, the fluctuation depends on the prevailing interest rates. The mortgage providers usually offer a grace period, giving you a break from paying the interest rates and a fixed payment at the introductory period before it reverts to adjustable rates later, say at the third or fifth-year mark. However, the arrangement depends on your lender, which is why you must first consult experts. For instance, Rob’s Loans customer support is always eager to discuss terms with you and offer a favorable deal.
That said, there are three types of adjustable-rate mortgages: Interest-only, hybrid, and payment options.
- An interest-only mortgage is an arrangement where you only pay interest for a specified period before you start paying down the principal balance together with interest.
- A hybrid plan – as the name suggests, this ARM comes with adjustable rates and fixed rates. It is usually expressed in two numbers. For example, 3/1 means you’ll pay a fixed rate for three years and adjustable rates after that annually until the loan is fully paid.
- The payment option plan allows you to choose between traditional, limited, and interest-only payment plans. Generally, opting for ARMs means you’ll enjoy significantly low interest. However, the unpaid interest and principal accrue on the loan amount. It is relatively detailed and complex, so you need to work with pros.
Final Words
Your home might be your most significant life investment. For this reason, don’t just settle for any home financing plan. Seek help and advice from experts for direction and guidance. Also, do thorough research on your available home financing options to avoid falling into a financial crisis. Don’t know where to start? Call us today. Rob’s Loans is ready to speak with you and guide you at any time.
