There are so many loans for buying a house that it can be overwhelming to pick one. You need to make sure that you aren’t hurting your finances and choose an option that suits you best.
If you need to buy a new home soon, you must understand what loan to choose. This article will cover the best option, so you can confidently pick it. Here’s what you need to know!
The Best Loan For Buying a House
The best loan will actually depend on your long-term housing plans. For example, if you plan to move out of your new home within a few years, you won’t want to choose a traditional home loan. Likewise, those who want to stay in the house forever won’t want to pick certain loans either.
It can be very confusing, especially if this is your first time shopping for a home loan. Let’s break down the best loans depending on your circumstances:
Best Loan For Those Who Want a Forever Home
If you want to pay for your forever home, you’ll want to choose a fixed-rate home loan. These loans offer consistent monthly payments and are the most common type of mortgage.
Having an interest rate that doesn’t change is very beneficial when you want to live somewhere for a long time. You’ll remain protected from interest rate spikes in the housing market, which can quickly make mortgage bills unaffordable.
If you choose this loan option, you must try putting at least 20% down on the loan. Those who put down less originally have to pay private mortgage insurance, or PMI, which can be pricey.
Overall, this loan is very predictable and remains the same over the years- which is precisely what you need if you plan on living in the same home for a very long time.
Best Loan For Those Who Plan To Move in a Few Years
However, if you plan to move out in a few years, a fixed-rate mortgage might not be the best for you. Instead, you’ll want to choose an adjustable-rate mortgage or ARM. With this home loan, the interest remains fixed for a set amount of time, then fluctuates.
The mortgage starts in this “introductory period,” lasting between five and ten years. During this time, the interest is below current market rates.
After the intro period, the interest can rise or fall. When an interest rate increases, you can spend thousands more on the mortgage, so many people sell before that happens.
Selling before the interest rate changes allows you to get the most out of the low-interest rates. In short, this loan isn’t for those who want a long-term home loan commitment but for those looking to sell relatively soon.
Best Loan For Those With Low Credit Scores
FHA loans are the best option for those who have lower credit scores. The government backs these loans, so they’re less risky for lenders. Plus, the down payments are much lower, and you can still get accepted with a high debt-to-income ratio.
The loans also come with low-interest rates, making them very appealing. You can qualify if you meet these conditions:
- Have a FICO score between 500 – 579 with a 10% down payment (or a FICO score of at least 580 with 3.5% down).
- Have an employment history over the last two years.
- Have verifiable income.
- You plan to use the loan to finance your primary residence.
- It’s been two years since bankruptcy.
- It’s been three years since a foreclosure.
That said, many lenders have their own conditions for the FHA loan. You can still apply and get accepted, even if you don’t meet the requirements.
Best Loan For Veterans
VA loans are excellent for veterans. However, you’ll need to have a certificate of eligibility to apply. There are many benefits you’ll want to consider, including:
- No down payment.
- No PMI (private mortgage insurance).
- Better interest rates.
- Lower credit score requirements.
- No prepayment penalties.
Overall, VA loans are the best loans that you can get to fund your new home- although only veterans can qualify for them. If this is you, you should take advantage of this opportunity as soon as possible.
Best Loan For Those Moving to Rural Areas
What if you want to move to a rural area? USDA loans don’t require a downpayment, making them more affordable for many families.
You’ll need to meet specific income limits and make this home your primary residence. It’s a good idea to check where the loan applies to know you’ll qualify.
This loan is another excellent option for those who qualify. You might even be able to get it in certain suburban areas, too- so make sure you check it out!
What’s the Best for First-Time Buyers?
If you’re a first-time home buyer, any of the above home loan options apply to you. However, there are also first-time assistance programs that you can consider.
These programs are income-based and offer assistance with down payments and closing costs. Each state has different options, so you’ll want to check what options are available where you live.
The U.S. Department of Housing and Urban Development (HUD) is an excellent place to find information. You can get a lot of assistance through HUD counselors, so ask about what programs you can qualify for.
In short, all of these options are great for first-time buyers. Although, you’ll want to review the loans and choose an option that works the best for your financial situation.
Choose a Loan That’s Right for You!
You must choose a loan that’s right for you. There’s a lot to learn, so you can use the above guide to help you pick. When you choose a loan tailored to your needs, you shouldn’t have any issues paying it back- plus, you get other benefits!
It’s good to research all of your options before you commit to a home loan. You’ll be paying it back for years, so you shouldn’t make a rushed decision.