It is true that buying a home can give you a great place to live and provide a way to build wealth. It also provides the home buyer with a sense of satisfaction and independence. However, all these benefits come with a cost. And that cost would sometimes mean getting a mortgage.
If you’re a first time home buyer yourself, then getting a mortgage has probably crossed your mind a few times. Feeling anxious about it? No need to worry because when you hire a mortgage broker, he or she will handle the whole transaction for you. However, one does not simply engage in a transaction that he or she does understand fully.
Similarly, it is believed that the more you know about the home mortgage process, the smoother your transaction will be. Hence, this article aims to give you a head start in your pursuit of the right mortgage plan by introducing some commonly used mortgage terms and what they mean.
Two of the most common types of mortgages are fixed rate and variable rate. A fixed-rate mortgage, also known as a conventional type of mortgage, is a loan that involves a set rate of interest that does not change. It is known that this plan is what most home buyers have in mind when they think about a mortgage.
A variable-rate mortgage, also known as an adjustable-rate mortgage, is a loan in which the rate of interest is subject to varying changes. In general, interest rates generally increase over long periods of time. An increase in interest rates will cause the monthly payment on a variable-rate mortgage to move higher as well.
Other types of loans are FHA, VA, and RHS. FHA loans come from the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development. This unit is known to administer other mortgage loan programs as well. FHA loans have lower down payment requirements and are easier to qualify than conventional loans.
VA loans are originated by the U.S. Department of Veterans Affairs. This type of loan allows veterans to obtain home loans with favorable loan terms, usually without a down payment.
Finally, RHS loans are guaranteed by The Rural Housing Service of the U.S. Department of Agriculture. This type of loan is usually offered to rural residents with minimal closing costs and no down payment as well.
These terms are believed to be the most commonly used in everyday mortgage transactions. Defining these terms, although not comprehensively, is important because basic knowledge of mortgage loans will facilitate a smooth and successful mortgage process.