Popular Mortgage Loan Types in Illinois
First and foremost, there are numerous types of mortgages to select from when buying a home. However, the many different mortgage types, possess their own specifications. Therefore, taking the time to understand mortgage types and the rates involved with them is a must for homeowners. Included in this article are the popular mortgage loan types involved with real estate transactions.
Fixed-Rate Mortgage
Firstly, fixed rate mortgages are also often referred to as “conventional home loans”. Of all the mortgage types available, this is the most popular. For example, studies indicate that roughly 90% of people choose this mortgage type over others. Furthermore, a fixed rate mortgage allows your interest rate to stay the same for a 30-year period (the life of the mortgage). Common terms under this mortgage type are 10-, 15-, 20-, or 30-year mortgages. Above all, a fixed-rate mortgage can have you paying lower monthly payments since the mortgage is long term and the interest rates do not change.
Adjustable-Rate Mortgage
Often accompanied by the acronym ARM, these mortgage types begin with a rate that stay the same over an agreed upon time. To clarify, for the first few years of the mortgage, payments are at one interest rate. However, later on (usually 3 or 5 years) the rate is “adjusted”, and a new payment amount comes in. Therefore, this situation is good for those who might not occupy a home for very long because the interest rate is lower in the first few years. Lastly, the downside is that the mortgage rate adjusts upwards, and, in our current financial times, mortgage rates are at all-time lows.
FHA Loan
Unlike the two mortgage types above, FHA stands for “Federal Housing Administration” and deal with a government body directly. In addition, these kinds of loans were created to help assist individuals with lower incomes and imperfect credit histories. These loans allow people to pay 3.5% for a down payment as long as their credit score exceeds 580. In the event you have a credit score under 580, a 10% down payment towards the property will be needed. In addition, borrowers of FHA loans must have a 50% or less debt-to-income ratio. Individuals seeking FHA loans should be aware that they will be required to pay for mortgage insurance. For example, one disadvantage is that you have to pay Private Mortgage Insurance (PMI) for the length of the loan.
