When looking for the perfect home to purchase, chances are you’ve probably done some research into the various types of home-loans available. How do you know which loan is going to be the right one for you? There are different variables that should be taken into consideration when shopping for a home loan. Consider where you will be living, how long you plan on staying in the home, and what fees are associated with the different types of loans to help you narrow down what loan is right for you. Below we’ve outlined 6 of the most common types of loans, and who they are best suited for to help you make the right decision for your home loan.

Fixed-Rate Loans

Fixed-rate loans are the most common type of home loan available. As the name implies, a fixed-rate loan is for a set interest rate and monthly payment for the lifetime of the loan—typically 15 or 30 years.

Right for: Fixed-rate loans are right for those who plan on staying in the home for a long time, and need predictability. These individuals need to know exactly how much they are going to be paying every month, for however many years their loan is good for. No flexible interest rate, so you’ll always know what to expect and how much you’ll need to pay. If you plan on only staying in the home for a short time, a fixed-rate loan might not be the best option for you.

Adjustable-Rate Loans

Adjustable-rate loans generally offer interest rates that are lower than what you’ll get with a fixed-rate loan, but only for a period of time, generally 5-10 years. After that time period, your rate and monthly payments will adjust, typically once a year, corresponding to what the current interest rates are. If interest rates go up, so will your monthly payment. The same applies if rates go down.

Right for: Adjustable-rate loans are right for those who have low credit scores. Typically, individuals who have lower credit scores can’t qualify for good interest rates with a fixed-rate mortgage. Therefore, an adjustable-rate lowers the interest just enough, making is easier for them to qualify for a home loan. Adjustable-rate loans are also good for those who don’t plan on living in their home long term, or for those who plan on selling and moving before their fixed-rate period ends.

FHA Loans

Most home loans require a down payment of at least 20% of the purchase price of the home. With a Federal Housing Administration (FHA) Loan, you can have as little as 3.5% for a down payment.

Right for: FHA loans are right for those who have a small down payment saved up. While the idea of only needing a small amount for a down payment, there are some catches associated with FHA loans that you should be aware of. Most FHA loans are capped at $417,000 with little to no flexibility. Rates for FHA loans are generally fixed, and are on either a 15 or 30-year term. Buyers will also be required to pay mortgage insurance, this is either required to be paid up-front or over the life of the loan. Typically, mortgage insurance is 1% of the total cost of the loan.

VA Loans

VA Loans are for those who have served in the United States Military, and offer a great alternative to a traditional mortgage. For those who are eligible, a VA loan allows for buyers to purchase a home with no down payment and no mortgage insurance requirements.

Right for: A VA loan is right for veterans who have served over 90 days consecutively during wartime, or 180 days during peacetime, or a total of 6 years in the reserves. There are some strict requirements established by the VA for home loans, regarding the type of home you can purchase. The home must be used as your primary residence, and must meet “minimum property requirements”, meaning no fixer-uppers.

USDA Loans

USDA Rural Development loans are intended for those who are living in rural areas. With a USDA loan the government finances 100% of the loans, meaning there is no requirement for a down payment. USDA loans also offers discounted interest rates as well.

Right for: USDA loans are right for individuals and families who are living in rural areas and struggling financially. To be eligible for a USDA loan, your debt cannot exceed your income by more than 41%, and you will be required to purchase mortgage insurance.

Bridge Loans

A Bridge loan, also known as a gap loan, or “repeat financing”, is an excellent option for those who are purchasing a new home prior to selling their current home. As part of a bridge loan, lenders will wrap both the current and new mortgage into one payment until the current home is sold. When the current home sells, you’ll pay off that home’s mortgage and refinance your new home’s mortgage.

Right for: Bridge loans are intended for homeowners who have excellent credit and have a low debt-to-income ratio. The other catch is, in order to be eligible for a bridge loan, homeowners won’t have to finance more than 80% of both homes’ combined values. If you meet both of these requirements, and applying for a bridge loan can be an easy way to transition between homes.

To learn more about the different home-loans available, and to learn which type you are eligible for, contact Geneva Financial, LLC today! We are here to help you find the right home loan for you and get you into the home of your dreams!