Types of Real Estate Loans
There are types of loans that are specifically available to people who are buying real estate. Such loans include:
- Conventional Loans
- Government-backed Loans
- Mortgages with fixed versus adjustable rates
Conventional loans or mortgages are privately backed. To qualify for these, you’ll need to have a good income and credit score, but because the interest rates are normally lower, your mortgage will be less expensive overall over the course of the loan.
These loans are protected from payment defaults by government insurance or guarantees, making it simpler for lenders to provide potential borrowers with cheaper interest rates. Additionally, they are significantly simpler to qualify for. These programs, which include FHA, USDA Rural Development, and VA home loans, are good for first-time purchasers.
FHA loans typically have lower down payments—as little as 3.5% down—they may be a more affordable option. With FHA loans, first-time buyers, those with low to moderate salaries, those with weaker credit ratings, or those with higher debt-to-income ratios can purchase a home more easily.
When comparing loans, you’ll also notice that fixed-rate and adjustable-rate loans have variable interest rates. In the case of a fixed-rate loan, the interest rate you initially agree to will be the same during the whole term of the loan.
An adjustable-rate mortgage has an initial rate that is typically lower than the market rate, but it will fluctuate over the course of the loan, possibly drastically increasing your monthly payment. A fixed-rate loan provides longer-term stability and protection, despite the initial allure of an ARM’s low rate.