The housing market may intimidate some prospective homeowners when they’re perusing their loan options. However, understanding the three types of mortgages available when you’re on a budget will let you know what possibilities are available.
Fixed & Adjusted
One of the most important figures to consider when you’re purchasing a home is the interest rate. Whether you choose a fixed- or adjusted-rate mortgage will depend on your current needs, but both of them offer specific benefits. A fixed mortgage may be in your best interest if you’re looking for consistency because the payment will never change. An adjusted rate mortgage lets you pay less upfront, but it will lead to more interest payments, depending on the length of your loan.
Various unconventional home loan options are available specifically for prospective first-time homeowners on budgets. A subprime or FHA loan is common for people who are new to the housing market. A subprime loan essentially gets you into the home at minimal upfront cost, but that comes with high interest rates or prepayment penalties. In regard to an FHA loan, a minimal down payment of 3.5% of the purchase price will get you through the door, but mortgage insurance payments will add substantial costs throughout the length of the loan.
The government also offers other loans for veterans and for people living in rural areas. If either of those options apply to you, it’s worth checking it out and comparing it to the other loan options.
A conventional loan is similar to unconventional options, but it requires a higher down payment. Typically, you’ll have to cough up a 5% down payment. The main benefit of using this option is that the rates and fees are lower compared to those of unconventional loans. Unfortunately, private mortgage insurance (PMI) will stay attached even with a conventional loan.
Out of these three types of mortgages available when you’re on a budget, you can determine which one best suits your needs. Only you know what your budget is and what your goals are. At least you know you have options even if you have little money to put down.