Once you have sights on the perfect property, environment, and location, the next big question is; how do you fund the purchase? Well, today, prospective property owners have a range of loan options to choose from. It may be a little daunting transitioning from paying monthly rents to paying mortgage and interest.
However, the right information about various loan options available should put you on an easier and less scary path. Besides, it may be unwise to opt for a mortgage plan without exploring all the other options first. So, here are 4 types of loans for buyers like you.
1. Conventional loans.
Conventional loans are independent of government aid or insurance. Such loans are not backed by any government agency and are funded by private lenders, credit unions, and banks. Conventional loans are quite flexible – private institutions like Finbri’s lending panel simply need to determine the amount you can borrow versus the equity of the property the loan is secured against.
However, since these loans are not insured by the government, the credit score required to access them is placed relatively high. In fact, prospective borrowers with good credit scores may get discounted interest rates simply because reputable scores are more reliable.
2. Jumbo mortgages.
Jumbo mortgages are non-conforming conventional loans that don’t fall within the lending margin of the FHFA. People who want to purchase luxury or grand second homes usually consider this option. However, such large mortgages can be quite risky for lenders, especially since they aren’t secured by government-sponsored bodies.
This means it might be trickier getting a jumbo mortgage even with a good credit score. Such people would need to plan towards an excellent credit score to even be considered.
3. Discounted Mortgages.
A good credit score may avail you of privileges like discounted interest rates, larger loan limits, and credit rewards. However, discounted mortgages offer such capped services as well. The lender has a standard variable rate and offers a fixed discount on that rate. For example, let’s say the lender sets the standard variable rate at 5% (this is solely the lender’s decision) and the mortgage includes a 1.5% discount. Rather than paying 5%, you will pay 3.5% instead.
However, the lender is also allowed to place a margin on such discounts. Let’s say this deal was supposed to last for 5 years. The lender may decide to offer the discount for two years, which means the borrower will pay the standard variable rate for the remaining three years.
4. Fixed-rate mortgages.
Fixed-rate mortgages offer prospective homeowners the luxury of paying a standard interest rate throughout the repayment plan. Even though the official interest rates spike, drop, or slightly change, the borrower is still entitled to pay the same interest rate throughout the validity of the loan.
These loans usually range from two to five-year maturity periods and are quite popular with people who prefer to play it safe. Although this option does offer stability for repayment plans, the interest rates may also be higher than variable or adjustable interest rate loans. Plus, if interest rates actually drop, people on this plan will still have to pay more until they have redeemed the loan in totality.