Buying a house is arguably the most fulfilling experience as an adult. If you’re already at that stage, congratulations! You’re officially living the dream of millions of people around the world.
However, by now, you must already realize that the process is not always rainbows and butterflies. Sometimes, it can be excruciating and overwhelmingly stressful. The good news is that such agonizing experience can be avoided if you know a thing or two about what you’re getting into – and that’s exactly what we’re doing to discuss in this blog.
The first thing you need to learn when purchasing a house is determining the type of mortgage broker deal that works best for your necessities. So, without further ado, let’s jump right into it.
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Fixed-rate mortgages
As the name suggests, fixed-rate mortgages maintain the same interest rate throughout the lifespan of your deal. Whatever transpires to the interest rates, your monthly loan payment will not change nor will it be affected.
PROS
- No sudden changes to interest rates, which is extremely helpful if you’re adhering to a budget plan.
- If the market condition plummets, you will not be affected.
CONS
- There’s a possibility that you could end up spending extra if you decide to terminate the agreement before the arranged end date.
- You won’t benefit if the market conditions go well.
- It takes more time to build equity in your home with this type of deal.
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Variable-rate mortgages
This is the antithesis of the fixed-rate type. The interest may rise or fall without prior notice. Some variable-rate mortgages offer a fixed-rate loan for a few months. After that, the mortgagee will transition to a variable rate deal. The key here is to find a deal that provides a forecast of the interest rate in order to avoid financial difficulties when it suddenly upsurges.
PROS
- It is typically lower compared to fixed-rate mortgages.
- You can pay in advance or leave the contract whenever you’d like.
CONS
- Loan rates can go out of your monetary grasp.
- If you are looking to sell your property, you will have to consider the market conditions. Lower home values may mean that you have to wait for a few months until the loan retunes.
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Discounted mortgage
The mortgagee may propose a discount off of their standard variable rate (SVR). An SVR is a mortgagee’s default annual percentage rate that will be issued to homebuyers. Also, mortgagees are able to change the SVR rate whenever and however they like. But with a discounted mortgage, you can avail a reduced price for a restricted period of time.
PROS
- You will be charged with a lower amount for a few years.
- If the mortgagee decreases their SVR, you will pay an even smaller amount.
CONS
- Bigger discount doesn’t always equal to the lower interest rate. Sometimes, mortgagees who advertise huge discounts have higher interest rates as opposed to the average. And they can double the figure anytime they want.
- If the marketplace increases its price, expect the discount rate to increase as well.
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Conventional mortgage
This is one that is not covered by the federal government. Usually, these are supported by private mortgagees sponsored by a government institution, such as Freddie Mac and Fannie Mae. A conventional mortgage is most recommended to mortgagors with decent credit scores. You can also evade private mortgage insurance (PMI) costs if you can make an initial 20% deposit.
PROS
- It’s generally faster to build equity in your home due to the 20% initial deposit.
- You can pay at least 3% as the down payment for loans endorsed by government-subsidized enterprises.
CONS
- You must have the following qualifications: a good credit score, the debt-to-income ratio of 45% to 50%, and other essential documents.
- Mortgagees will necessitate you to pay for PMI if your initial deposit is smaller than 20%.
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Government-insured mortgages
A government-insured mortgage is a great help to many aspiring homeowners in America. This type of deal protects the lender against losses as well as assists borrowers who do not have a good credit score. There are three focal types of government-insured mortgage services welcome our official website:
FHA: The most popular type is the Federal Housing Administration (FHA) loan program. It is much easier to be eligible for this mortgage deal compared to conventional loans. Furthermore, mortgagors are allowed to pay at least 3.5% as the initial deposit of the property’s purchase value.
VA: The Department of Veterans Affairs (VA) provides attainable rates for those serving for the U.S. Military. Veterans, active members, and even spouses are qualified for the benefit of 100 percent funding. In other words, mortgagors under this program are not obligated to pay any down payment or PMI.
USDA: The U.S. Department of Agriculture (USDA) mortgage program was launched to assist mortgagors living in city outskirts to buy the property. However, borrowers must have a household income of 115% or lower of their area’s average income.
PROS
- Small initial deposits and flexible qualification criteria for mortgagors.
- More attainable as opposed to conventional loans.
CONS
- The three aforementioned programs require you to sign up for mortgage insurance premiums, which cannot be nullified on some loans.
