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Real Estate
2 Types of Mortgages for Home Buyers: Conventional & Fixed-Rate Loans
May 3, 2021
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Choosing an ideal home loan that is tailored to your needs is as important as selecting a neighborhood. If you can decide early which type of loan matches your needs, it’ll be easier for you to find the property in your budget. However, different loans have their own requirements such as down payment, credit score, etc. Also, each loan type comes with its own pros and cons. And because of all this, it sometimes gets overwhelming for new home buyers to select the correct loan type for buying a property. 

To make things simple for you, this article will talk briefly about conventional and fixed-rate loans for buying a property.

2 Types of Mortgage Loans: Fixed-Rate & Conventional Loans

Fixed-Rate Loans

In this type of loan, you’ll have to pay a certain amount of money throughout the loan period. However, the monthly payment can fluctuate because of the local tax rates and insurance. But in most states or cities, borrowers pay a specific interest throughout the duration. One of the key advantages of this loan is that it allows the borrowers to make a monthly budget. However, if the interest rate is higher, you may end up spending a lot of money on interest. That’s why it’s better to consult with a nearby real estate agent and mortgage broker about the market interest rate.

Pros

  • Allows borrowers to make a monthly budget
  • Perfect for people living in “forever home”

Cons

  • If the interest rates are high, you’ll end up paying a lot more

FHA Loan

This type of loan doesn’t have any strict rules about income, house location, and house type. However, it requires a good credit score and DTI or debt-to-income ratio.

If you have a credit score of 620, you can have this loan with as low as a 3.5 percent down payment. However, when the down payment is lower than twenty percent, you’ll have to pay the PMI or private mortgage insurance.

Pros

  • Down payment is only 3.5%
  • Requires minimum credit score of 620

Cons

  • Requires minimum credit score of 620

Factors that Decide Which Mortgage Loan You’ll Get

1.      Income  

While offering you a mortgage, the bank or lender will consider the amount of money you earn and your assets. Based on these, they calculate the amount of money you can pay back in a specific time and give you the loan.

2.      Credit Score

Some loan types require a good credit score, and some don’t. If you have a relatively good score, chances are you’ll get qualified for almost every home loan. However, you can still get a loan with a low score, but you may have to pay higher interest rates.

3.      Amount of Down Payment

Down payment varies from one loan to another. Usually, it’s about five to ten percent of the total loan amount. However, in some loan types, you may have to pay more than that or simply nothing. That’s why while selecting a loan type, look at the down payment closely and select one that matches your limits.

For more info, please visit: Charles Carillo

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Richard Nevis

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