Buying a home means more than just choosing the best broker and picking your desired property, you are also faced with the daunting task of obtaining a mortgage as well. In order to save money and get the best terms possible, it’s necessary to compare various mortgage loan choices, along with checking your credit score and planning your down payment. It is also a good idea to know what the advantages and disadvantages are of the different types of mortgages before you settle on which type of mortgage is your best option. In this article, we spoke to the real estate brokerage firm at AK Premier Real Estate Services in Raleigh North Carolina to find out which mortgages they encounter the most with their clients so we can discuss them in detail:

Fixed-rate mortgages

Just what they sound like are fixed-rate mortgages: home loans with a fixed-rate mortgage. The most popular form is a 30-year fixed-rate mortgage, but you may instead choose shorter term with a 15-year or 20-year mortgage loan.

Advantages

  • The monthly payments for principal and interest remain the same over the life of the loan
  • Month by month, you can more accurately budget those expenses

Disadvantages

  • For a longer-term loan, you would usually pay more interest.
  • Building equity in your home takes longer.
  • Interest rates are usually higher than flexible mortgage rates.

Adjustable-rate mortgages

Mortgage loans with an adjustable-rate have an interest rate connected to an index, or benchmark rate. You pay a low rate during the initial term of the loan, but the rate will go up or down after that time ends. It would depend on what happens to the benchmark rate.

Advantages

  • At first, you can save money with a negative interest rate,
  • Savings will continue if the benchmark rate of your loan stays low.

Disadvantages

  • If the rate adjusts considerably upward, this may become much more expensive.
  • To lock in a fixed rate, you will need to refinance to a new loan.

Government-backed loan options

Federally supported and provided by affiliate banks are government-backed mortgage loans. Government assistance provides a mortgage lender with a sort of insurance policy if you fail to return the loan for some reason.

You may consider three key types of government-supported mortgage loans as follows:

  • FHA Loans: focused on average income and first-time homebuyers
  • USDA Loans:S. Department of Agriculture loans help buyers to purchase a home with no down payment in designated rural areas if they are income-eligible.
  • VA loans: Veterans and their families will purchase a home with no down payment and no private mortgage insurance using VA mortgage loans.

Advantages

  • For approval, a perfect credit score is not required.
  • Great for first-time and repeat buyers who want a low down payment home to purchase

Disadvantages

  • Private mortgage insurance that cannot be canceled is required by FHA and USDA loans
  • Properties may be subject to tougher standards for inspection and evaluation.

Jumbo mortgage loans

If you are buying a home in a location where there is a high cost of living and property prices are far above the national average, this form of loan could be more desirable. For a jumbo loan, the limitations can differ by state and locality.

Advantages

  • These loans would make it possible to buy a more expensive home
  • You will still get low-interest rates even if the loan is bigger

Disadvantages

  • Credit score demands are always higher, with the exception of good or bad credit borrowers
  • Banks and lenders may expect larger down payment compared to a traditional or government-backed loan

Closing thoughts (no pun intended)

Carefully consider your financial position before going forward with any mortgage. Check all the conditions / criteria of the loan and do your homework to understand which types of mortgage loans are most likely to help you achieve your goals.