Home Financing: Choosing the Right Loan for You
When it comes to buying their dream houses, people often turn to financing. But it’s not easy to look for a nice home, get a loan to buy it, then spending the next several years paying off the mortgage. Don’t get swayed into a false sense of security even when banks and moneylenders give you very low interest rates — you’ll still need to do your homework.
It is better to investigate around and ask about what types of credit are open in the market that may suit you. It is impossible to have a perfect loan that will work for everybody. There will always be one loan type that will work better for you than another. Decide first on what you want for a home in order to have the best type of loan you should choose.
For Low-Income Individuals
If you’re having problems getting a loan because your income doesn’t qualify you for it, then maybe a temporary buydown is best for you. A temporary buydown is a loan that’s meant for low-income people who are expecting an increase in income soon.
There are two popular types of temporary buydowns — 3-2-1 buydown loans and two-to-one buydown mortgage. In the former, the loan’s interest rates increases by one point a year for the next three years, and then stays the same for the rest of the loan’s duration. In the latter, the interest rates increases by one point for the first two years only.
When you apply for a buydown, you are going to be required to pay extra money in advance in exchange for the lower rate. The lending agency will then “allow” you to be eligible for the loan.
Move In, Move Out Buyer
If you want to own a home, but you’re not sure you’ll be staying in any one place for good, then the best loan for you may be the delayed adjustable rate mortage (or delayed ARM). Delayed ARM’s are suitable for individuals who move between cities frequently, or those who plan to sell their homes after paying for them completely.
When you take out a delayed ARM, you’ll be paying fixed monthly payments longer than temporary buydowns. For example, if your delayed ARM is 5-1, then the interest rates won’t change for the first five years. It will only change on year six onwards. The change will depend on market conditions and your agreement with the lender.
For those looking to settle down
If you’re planning to settle down somewhere for good, then a fixed-rate mortgage is best for you. Fixed-rate mortgages have interest rates that won’t change for the lifetime of the loan, meaning you’ll be paying a fixed amount every single month. Getting a fixed-rate mortgage with low interest rates is a great idea, since you won’t have to pay more even when market rates rise.
There are 30- and 15-year fixed rate mortgages available. You end up paying the same amount of money in bo h schemes, but a 30-year mortgage will obviously have lower monthly payments.