Types of Home Loans for First Time Buyers

There are options when it comes to financing a new house. For most people, a home loan is the most feasible way to finance a home. A home loan helps pay for a home if you don’t have the cash on hand for a down payment. The most common type of home loan is a 30-year loan with a fixed interest rate. However, there are multiple types of home loans available. The “right” home loan for you can vary based on your financial circumstances and what you plan to use the loan for, such as buying a home, remodeling, refinancing, or planning for other major life expenses such as a child’s college education.

What are the most common types of home loans?

Fixed-Rate Mortgage
Adjustable-Rate Mortgage
Home Equity Lines of Credit
Federal Housing Administration Loan
Reverse Mortgage

Keep reading to learn which mortgage is right for you. A mortgage broker in Las Vegas can also explain the types of home loans available and which ones might work best.

Fixed-Rate Mortgages

Fixed-rate mortgages are one of the most common types of mortgages in Las Vegas. A fixed-rate loan provides borrowers with a set interest rate for a certain number of years. Because the interest rate doesn’t change, you know exactly how much you’ll be paying each month. For that reason, a fixed-rate loan is an appealing choice for many borrowers. A fixed-rate loan is also recommended if you plan to stay in your home for an extended period – at least five years, and up to seven, experts say. If you plan to stay in your home for less than five years, be aware that you may pay more in interest payments for this type of loan than other loans. A fixed-rate loan is also ideal for individuals concerned about changing economic circumstances, as a fixed-rate loan retains the same interest rates over many years, which protects consumers against inflation and changes in market conditions.

There are two primary loans in this category, which are 15-year loans and 30-year loans. There are pros and cons to each type of loan to consider before deciding which one to get. The interest that you pay, and the monthly payment amounts for both types of loans, are one major consideration for many people when deciding which one to choose.

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) are loans Las Vegas that initially have lower interest rates than fixed-rate mortgages. The interest rates on ARMs are set for a certain period, usually five to seven years. After that time, the interest rate can change. Most interest rates will change monthly, but they can be set for up to one year. One consideration with an ARM is that the interest rate can change after the fixed period. Interest rates may become higher, but they can also fall. Therefore, there is no guarantee that you will pay more or less with a fixed-rate mortgage when the interest rate resets. Because of the uncertainty, many people choose to get an ARM if they can initially secure low-interest rates and plan to move within the next five years. ARMs are also an ideal option for homebuyers who have lower credit scores. They are also a good option for people who plan to live in their homes for a short time and sell them before the fixed loan rate period ends.

Home Equity Lines of Credit

Home Equity Lines of Credit (HELOC) are another option for home loans. HELOCs allow homeowners to borrow against their home’s equity, which can be up to 80 percent of the home’s overall value. HELOCs are generally used to finance home improvements. However, they are also commonly used to pay for major purchases, such as a child’s college education or other significant expenses. One consideration with a HELOC is that if your home’s value declines, you may end up owing more for your HELOC loan than your home is worth. Interest rates vary with HELOC loans, which only cover interest in the first few years.

Federal Housing Administration Loans

Federal Housing Administration (FHA) loans are ideal for people who want a lower down payment. Traditionally, home loans require a down payment of 20% of the home’s purchase price. However, an FHA loan may require a down payment as low as 3.5%. FHA loans require a lower down payment because the government backs them. FHA loans are ideal for homebuyers who have less cash for a down payment. However, they come with some requirements. FHA loans have a limit of $417,000, which is a consideration to keep in mind if you plan a home renovation. Because they require a lower down payment, FHAs also require mortgage insurance, usually about one percent of the loan’s amount. See our blog How to Know if You Qualify for an FHA Loan for additional information.

Reverse Mortgages

Reverse mortgages are another type of FHA loan. Reverse mortgages allow homeowners to withdraw equity from their homes. They are ideal for older homeowners, as they can be used to supplement Social Security. Reverse mortgages can also be used to finance home improvements and pay medical bills. Reverse mortgages can even be used to fund retirement. Individual requirements apply for reverse mortgages. Homeowners must be at least 62 years old. They must own their own home or have a low mortgage balance that can be paid off at closing. Reverse mortgages do not require a monthly payment, but the homeowner must cover other homeownership costs.

How a Mortgage Lender Can Help

Homeowners have many options when deciding what kind of home loan to choose. A mortgage broker in Las Vegas can help you decide what kind of loan to take out, depending on your circumstances and homeownership goals. The Drennen Team is committed to hearing clients’ goals and advising to help them achieve them. John Drennen has nearly 20 years working with homeowners in the Greater Las Vegas area. Contact us today to achieve your dream of homeownership. (Read more on what you need to know about financing your investment properties here.)