Buying a home is a big deal. It represents a milestone for you and your family. But homes also cost so much today, even here in Pennsylvania. As a result, home loans are a popular choice for homebuyers. However, most fail to get the right loan and end up paying more than they should.

From the professional perspective of a Pennsylvania real estate agent, we’ll give you a run-through of home loans and which one you should take to buy your home.

What’s a Home Loan?

Also known as a home mortgage, this type of loan uses your residence as collateral if you default from your loan obligations. Because of its nature as a secured loan, people who get a home mortgage usually enjoy lower interest rates.

Home loans have two general types:

  • Conforming Loans

  • Non-Conforming Loans

Conforming loans are mortgages that meet the Federal Housing Finance Agency (FHFA) requirements and can be sold to Freddie Mac and Fannie Mae.

Conforming loans are advantageous for you since they offer comparatively lower interest rates than non-conforming ones. This type of loan will have a strict set of criteria before getting a mortgage loan.

On the other hand, non-conforming loans exceed the dollar limits set by FHFA and thus cannot be sold to government-sponsored entities such as Freddie Mac and Fannie Mae. As a result, you will have to pay higher interest. However, non-conforming loans are looser in terms of their guidelines, making them more accessible to more homebuyers.

Here are the five types of home loans that you can get right now:

1. Conventional Loan

This is the most common type of loan for you. As a secured loan, a conventional mortgage can offer a downpayment of as low as 3% when buying a home.

Conventional loans are a type of conforming loans. Consequently, the guidelines to qualify for this loan can be rigid, such as:

  • A minimum credit score of 620

  • A debt-to-income ratio of 43%

  • Documentation to verify your income, assets, and employment

You also have the option to skip paying the private mortgage insurance (PMI) if your down payment reaches 20% of the home’s agreed value.

If you have a steady income and a good credit history, you can take advantage of this type of loan.

2. Fixed-Rate Loan

Fixed-rate loans are precisely what they sound like. You will pay the same interest and principal value throughout the loan duration. As a result, it’s easier to map out a budget for your mortgage and avoid unforeseen fluctuations in value. This is best for people looking to settle down with their current home.

However, you may need to carefully consider buying a home with this type of loan, especially if the interest rates in the area are high. You will be stuck paying that same rate until your loan expires.

3. Adjustable-Rate Loan

Adjustable-rate loans are the exact opposite of fixed-rate loans.

These loans last for 30 years with interest rates “adjusted” as market rates shift. You will typically have an introductory period of up to 10 years, paying a fixed rate for your interest during this time. This is then adjusted for the rest of the loan term. If the market rate is higher, then you will have a higher interest rate. In contrast, if the market rate is lower, then you will enjoy a lower interest rate for your loan.

This type of loan is best for families and individuals that do not plan to stay in their first home forever or on the entire term of their loan.

4. Government-Insured Loans

This type of loan provides you with the government’s assistance if you don’t qualify for a conventional loan. There are three types of government-insured loans:

  • FHA Loans. This requires you to have a credit score of at least 580 and a downpayment of 10%. You can even buy a home with a credit score of 500 if you pay at least 10% of the home’s value.

  • VA Loans. This loan requires you to meet the Armed Forces and National Guard qualifications. You will then enjoy no downpayment and meager interest rates.

  • USDA Loans. Insured by the United States Department of Agriculture, this loan type can qualify you with no down payment when buying a home. USDA loans also don’t have very rigid qualifications to apply.

5. Jumbo Loans

If you are looking to buy a high-value property, then jumbo loans can be an excellent option for you. However, you will need to have a lower debt-to-income ratio and a higher credit score to qualify for this type of loan. You also need to provide a downpayment between 10% to 20% for jumbo loans.

While this is undoubtedly more difficult to qualify for, jumbo loans will still allow you to buy a high-value home while enjoying interest rates similar to conforming loans.

Conclusion

Knowing what type of loan suits you may require professional help. With the Ashley M. Miller Team and Your Home Hero, you will get a Pennsylvania Real Estate Agent that will take you one step closer to your dream home.

Contact us today to learn more about us and how we can help you.