When it comes to buying a home, there are different types of loans offered by lenders to consumers. Of course, keeping track of them all can confuse homebuyers, especially if it’s their first time purchasing a house.
Fixed Vs. Adjustable
All loans adhere to either a fixed or adjustable mortgage rate schedule. Sometimes, it can be a combination of the two. Fixed rate mortgages have the same interest rate throughout the life of the loan. This means the monthly payment stays the same until the loan is paid in full. Because homeowners have the security of predictable payments, the interest is usually higher compared to adjustable rates.
Adjustable loan interest rates change occasionally, usually on an annual basis. Typically, adjustable rates start lower than fixed rates. Despite the lower rate in the beginning, there is no certainty to interest variability from year to year.
Government Vs. Conventional
In addition fixed or adjustable rates, loans may be insured by separate entities. The federal government backs government-insured loans, which include FHA, RHS, and VA types. This means that if a homebuyer defaults on a loan, the government pays the balance to the bank.
Typically, these loans require little to no down payment from the homebuyer, but they often have eligibility and insurance requirements. A government body does not insure conventional loans. Because of this, rates are more flexible, but they require excellent credit.
If you want to explore individual loan offerings within these types, contact Choice Lending Services today.