Back in 2004, 69% of Americans owned a house. However, that number is down to 63.4% today. Though this is heavily due to the change in economic climate, it’s also partly a result of new difficulties that often come with applying for a home loan. Getting approved for a mortgage is far from a simple process, but taking the time to learn about the basic types of mortgages can help you determine which best fits your needs. Here’s a quick guide to help you understand the most commonly used types of mortgages.
FHA (Federal Housing Administration) loans are considered to be one of the most commonly used mortgage types for first time homebuyers. This is partly due to the fact that FHA loans have among the lowest credit requirements of all mortgage types. Anyone that has a FICO score of at least 500 can qualify for an FHA mortgage with a 10% down payment, but if your credit score is at least 580, you may be able to qualify for a loan with just a 3.5% down rate.
This is considered to be the most common mortgage type for all homeowners. This type of mortgage has the lowest monthly payments, and unlike other mortgage types, you can be sure that your rates won’t ever increase.
Similar to 30 year-fixed mortgages, a 15 year fixed-rate mortgage has a higher payment, but homeowners will save on interest rates in the long run.
“A 15 year rate will have a higher monthly payment but more of your payment will go towards the principle balance. You will pay off your loan in half the time and save a ton in interest. 15 year mortgages also have a lower rate than 30 year loans, your mortgage rate could be as much as 1% lower with a 15 year mortgage,” writes The Lenders Network.
Ultimately, understanding these basic types of mortgages can help you work with a banking professional to determine which is best for you. There are also many other types of mortgages that are ideal for certain financial and life situations, including government home loans and home loans for veterans. For more information about home mortgages, contact First Bank of the Palm Beaches.