Are you looking to take out a real estate loan but aren’t sure which type to select?
There are many types of real estate loans available in today’s market. Choosing the right one will depend on a variety of factors, including your financial situation, the type of property you’re buying, and more.
Read on to learn about the different real estate loans.
A conventional loan with a fixed-rate mortgage is for someone who has a good credit score and plans to move into a home that doesn’t need a ton of repairs.
You’ll typically need to make a down payment of 5 to 25 percent of the purchase price with this type of loan. The fixed terms usually last between 10 and 40 years. Conventional loans fall into two categories: conforming and non-conforming.
Conforming loans are for less than $700,000, while non-conforming ones (also known as jumbo loans) are for anything above this amount.
Government agencies provide government-insured loans for mortgages. There are three agencies that provide these loans:
- The Federal Housing Administration (FHA)
- The US Department of Veteran Affairs (VA)
- The US Department of Agriculture (USDA)
Depending on your credit, you may only need to put as little as 3.5% down for an FHA loan. VA loans are for active-duty members and their family members, and they don’t require a down payment.
USDA loans are for those who live in rural areas. Depending on your income, you may not need a down payment for a USDA loan.
In some instances, a lender can provide you with a mortgage loan in which you only have to pay interest for the first 5 to 10 years. After this time, your loan will alter to a conventional mortgage loan with a fixed interest rate.
While this loan can take longer to pay off, it’s great for those who may be struggling with making monthly payments.
Adjustable-Rate Mortgage Loan
An adjustable-rate mortgage loan comes with a fluctuating interest rate that’s determined by the lender terms and market conditions.
Many ARM loans come with a fixed rate for the first few years, and then they switch to variable rates (sometimes with a cap). If you don’t plan on staying in your home for more than a few years, this could help you save money on interest rate payments.
If the property you purchased is a duplex or multi-family home, you can qualify for an owner-occupied home. In this event, you can use your rental income from the property to underwrite the loan with higher loan limits.
To qualify, you’ll need to have signed rental lease agreements with your tenants. You can click here to see some residential properties and family units.
Real Estate Loans: Which is Right for You
Now that you know about the different types of real estate loans, it’s time to figure out which one is right for you. Choosing a loan can have a huge impact on how much you pay for your property in the long run, so be sure to discuss it with your broker and agent.
And, check back in with us for more home loan tips.