Connect with us

Business

An Explanation Of The Different Kinds Of Mortgages

We have summarized some of the more common kinds of mortgages that are available to homeowners below so that you can be confident when approaching the home buying process.

mm

Published

on

Different Kinds Of Mortgages

So you have found your dream house and are ready to make an offer. Congratulations! All that is left to do now is get a home loan secured from a lender to pay the house. If you are a first-time homebuyer it can, of course, be confusing to navigate all of the ins and outs of getting a mortgage and it is not an easy process.

Before making a final decision on a home loan, be sure to research all of the mortgage options that are available to you very thoroughly. The home’s location, how long you are planning to live in the house, and competition from other buyers for the home are all factors to consider when shopping for a home loan. You will ideally also want a mortgage that does not break your budget with high-interest rates and exorbitant fees.

We have summarized some of the more common kinds of mortgages that are available to homeowners below so that you can be confident when approaching the home buying process.

The Basics

Homeowners need to be aware that a majority of mortgages are either classified as conventional home loans or government-insured loans. The federal government insures government-insured loans, but not conventional home loans – which makes them a bit riskier for lenders. That means that home buyers who are looking to take out a conventional home loan are going to likely need to have excellent credit.

The size of a home loan is another way to characterize them. Most of them are either jumbo loans or conforming loans. Along with the size and insurance source of a loan, the structure of the interest rate is another key characteristic of home loans.

Typically, mortgages are either classified as being fixed-rate mortgages, which means that the interest rate does not change, or as an adjustable-rate mortgage, which means the interest rate adjusts and changes over time based on what the current market conditions are.

Conventional Mortgage

One of the more common kinds of mortgages that are available to homeowners is the conventional home loan. The federal government does not insure this type of loan. Non-conforming home loans are conventional mortgages that exceed the federal loan limits. A jumbo home loan is the most common kind of non-conforming home loan. Bankrate.com says that jumbo home loans are used whenever the price of the home exceeds the federal loan limit.

Since the government does not back conventional loan there isn’t any guarantee that the borrower will pay back the loan, which for the lender, makes them a riskier type of loan to offer. That is why typically conventional home loan borrowers must have limited debt, a good credit history, and a high income. It can be hard to qualify for conventional mortgages, but for those homeowners who are able to, there are some advantages. If a 20 percent down payment or more is made on a conventional mortgage, private mortgage insurance (PMI) will not need to be paid.

Government-Insured Mortgage

Government-backed loans are a popular alternative to conventional mortgages. Three government agencies insure these loans, including the US Department of Agriculture (USDA), the US Department of Veteran Affairs (VA), and the Federal Housing Administration (FHA). The following is a quick overview of these three government-insured types of mortgages.

FHA Loans – An FHA mortgage is often considered to be the easiest type of loan for homeowners to get. The reason for this is that lenders will be more likely to take on the risk of borrowers who are less than perfect since the loan will be covered by the FHA if the borrower falls behind on their payments. A large down payment is not required by the Texas FHA loan.

Those with an FHA loan, in fact, can put down as low as 3.5 percent of the total purchase price to purchase a home. To qualify for an FHA loan, homeowners also don’t need to have a high credit score. However, FHA loans do have a few downsides associated with them that homebuyers need to consider.

First of all, an FHA loan can only be used to buy a primary residence – not an investment property or secondary residence. Second, high mortgage insurance premiums must be paid by homebuyers, which can increase the cost of their mortgages.

VA Loans – Another good alternative to conventional mortgages is the VA loan. However, in order to qualify for this type of loan, homeowners must either be active members or veterans of the United States military. Service members who do qualify are able to get a mortgage without being required to pay mortgage insurance or make a down payment.

Bankrate.com reports that closing costs frequently are paid by the seller and are capped. Although VA loans are a very affordable alternative to conventional mortgages, there are also a few downsides associated with them. To begin with, there are a limited number of buyers who are able to qualify for this kind of home loan.

Second, there are also restrictions on the kinds of properties that you can buy with a VA loan. For example, this type of loan cannot be used to buy rental properties. Third, homebuyers who buy a house using a VA loan are charged a funding fee, that can range from 1.25 percent up to 3.3 percent of the total amount that is borrowed.

USDA loans – This type of loan is for low-income homebuyers who want to buy a property that is located in specific designated rural areas. Before applying for a USDA loan, a homebuyer will need to check to see whether the address qualifies as one of the rural areas. USDA loans have low-interest rates and do not require high credit scores or a down payment.

However, the drawback is that borrowers need to be low or moderate-income earners. The benefits of this type of loan also vary depending on the amount of money the borrower earns. Homebuyers also can only qualify for this type of loan when the house that they want to buy is in a designated rural area according to the USDA.

Fixed-Rate Mortgage

For those homebuyers who prefer predictability and stability, the best option is probably a fixed-rate mortgage. Those who opt for a fixed-rate home loan will be paying the same mortgage payment each month over the entire life of their loan, no matter what the current interest rates are or how much they increase or decrease.

Typically, a fixed-rate loan has a lifetime of 30, 20, or 15 years. For homeowners with a fixed-rate mortgage, knowing that their mortgage payments each month will always be the same allows them to be able to budget their expenses based on this.

However, it can also make it a slow process to build equity in their homes. Typically, interest rates are also higher on fixed-rate mortgages. That is why a fixed-rate mortgage might not be the best fit for borrowers who are not planning on staying in their houses for a very long time.

Adjustable-Rate Mortgage

An adjustable-rate mortgage, or ARM, offers loans with non-fixed interest rates. The rate instead changes and fluctuates based on what the current market conditions are. That means that homeowners who have an ARM loan might have lower monthly mortgage payments over a certain time period.

However, after a certain period of time, those monthly payments are subject to change, which makes them unpredictable for homeowners who are planning to stay in their houses over a long time period. For example, homeowners who have a 5/1 ARM might have a great interest rate for five years but then their monthly rate might increase each subsequent year based on what the current market conditions are.

We are an Instructor's, Modern Full Stack Web Application Developers, Freelancers, Tech Bloggers, and Technical SEO Experts. We deliver a rich set of software applications for your business needs.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Influencing Consumer Decisions: Five Principles

An individual or organization’s consumer behavior is based on buying certain products and supporting certain brands. Behavioral, motivational, and psychological issues are the primary focus of this study area.

mm

Published

on

Influencing Consumer Decisions Five Principles

An individual or organization’s consumer behavior is based on buying certain products and supporting certain brands. Behavioral, motivational, and psychological issues are the primary focus of this study area.

-Several psychological factors influence how a person responds to advertising, including perceptions, attitudes, and a general view of life.

-The demographics of the audience, including age, culture, profession, age, and background, largely determine consumers’ interests and opinions.

-A person’s social group influences how they shop. Education, income, and social class all play a role in purchasing decisions.

When conducting virtual product testing, you can influence consumer behavior more effectively by knowing consumer trends. Consumer habits and priorities change as businesses do. Today’s tastes are different from 10 years ago, and they will be different ten years later. It is important to keep consumer behavior trends in mind when designing and improving your marketing strategy.

5 Principles of influence

In his study of social influence, the researcher formulated six universal principles to understand behavior change. The principles can be used by businesses and consumers to understand purchasing behavior better and determine what strategies are most successful.

1. Reciprocity

Humans are often compelled to repay favors or reciprocate kind gestures. For example, the consumer might get a free product sample or a substantial discount.

2. Commitment

Engaged people are more likely to stick with something. The idea here is to cultivate brand loyalty; once someone has used a product or service, they are more likely to repurchase it in the future.

3. Consensus

The more people who do something, the more likely others will do it. Consumers are likely to buy into brands to demonstrate their popularity or satisfaction among a large customer base.

4. Authority

Experts tend to have listened to more than the average person. To convert new consumers, a relevant expert talking about the effectiveness of the brand’s product or service is more important.

5. Liking

Persuading a consumer to buy is more likely when the person is similar to the target consumer. It is far easier to convince consumers with similar characteristics – whether ethnicity, socioeconomic status, religious inclination, or common interests.

Conclusion

When companies are equipped with these five principles of influence, they can better navigate potential consumers and convert more sales. However, the long-run consequences of manipulation could spell disaster for the researcher as he warned against crossing the line between influence and manipulation.

Whether the principle of influence exists in a given situation should be an issue that people, companies, and marketers consider – that is, do they have to manufacture it, or can they discover it? Nobody wants to be a smuggler of influence and using the power and claiming to be an expert when they’re not will ultimately lead to negative results.

Continue Reading
Advertisement
Advertisement
Security4 hours ago

Penetration Testing Requirements for Achieving SOC 2 Compliance

Business12 hours ago

Influencing Consumer Decisions: Five Principles

Internet4 days ago

Fundamentals Of Plastic Surgery SEO

Computer Network4 days ago

The ‘Outrageous’ Cost Of Cable And Satellite TV

TwinzTech4 days ago

Who Benefits From School Management Systems?

Marketing5 days ago

How To Avoid A Scam In The Name Of Best Forex EA?

Gadgets1 week ago

Desklab: Best 4K Gaming Monitor 2022

Business2 weeks ago

What You Should Know About Digital Student Id?

Business2 weeks ago

Four Things You Should Know About Your Instagram Verification Badge

Security2 weeks ago

Are Online Payments Safe In The Current Digital Age?

Advertisement
Advertisement

Trending