The end of December 2020 saw the lowest mortgage rates for around 30 years in the US. The average mortgage rate for the whole of that year was just 3.11%, and in December it dropped to 2.68%.
All through Covid, the housing market surged with supply being unable to meet demand. House prices rocketed and have continued to do so as the halfway point of 2022 is reached.
Mortgage rates remain relatively low, but there are signs this may change as the year progresses. If you are looking for financing for a new home, you will be keen to know what options you have. For the uninitiated, the choice of home loans can be quite surprising.
What different types of home loans are available today in the US?
Some types of mortgages or loans are standard, and they will likely be the kind that your parents or friends are using. But there are many different options and variations, and these are designed to suit a particular need.
In no special order, below are some of the main real estate financing options in the US now.
Hard money loans
This sort of financing is rather comparable to a bridging loan. It is loaned from a private fund and is secured against the value of the real estate concerned. Although hard money loans come from a private fund, they are not the same as private money loans which are unlicensed.
Hard money loans come from licensed lenders and are usually a way to organize short-term financing. This can be used to bridge the interval when one property is purchased before the sale is complete on another. It can also be used to finance the final renovations or construction on a building before the sale when the loan will be paid back.
Conventional 97 loans
Perhaps, amongst all the tips for first-time buyers, one of the main ones is choosing the right mortgage. A conventional 97 loan is one of the better choices for those about to purchase their first property.
These are conventional loans, but they are offered to those with smaller deposits on lower incomes. A conventional 97 needs only a 3% deposit, making it similar to FHA loans, but with a few differences.
Like the FHA loans (for example, here is where to get FHA loan in Houston), these mortgages require a smaller down payment than some others. However, a conventional loan requires a better credit score than an FHA loan and a lower debt-to-income ratio in many cases. But, they don’t need upfront mortgage insurance fees as FHA loans do.
Typically, these real estate loans attract buyers through their initial low-interest rates. They will normally lock in a fixed rate for a number of years but from then on the rate will be adjusted annually.
These are good choices for those who don’t intend to have a mortgage for the long term.
These mortgages only require the interest charges to be paid, meaning the principal loan amount is never touched. Therefore, these can be good for borrowers who don’t intend to keep the property for the long term. They are also good for those who can make periodic payments against the outstanding principal debt, or pay it off entirely.
If you have an unexpected windfall, you may ask yourself should you pay off your mortgage? With an interest-only mortgage, it could be a good idea, but these loans aren’t ideal for everyone.
These are specially designed real estate loans for military personnel. They are backed by the government Department of Veterans Affairs, need no deposit, and have low interest rates.
These can be set over different periods, 15 years or 30 years for example. Mortgage rate predictions point to rates settling between 5% and 7% by the end of 2022, according to some experts. A fixed-rate mortgage means there is no guesswork needed. Instead of interest rates which can fluctuate wildly, the mortgage holder will know exactly what their payments are going to be. And, by choosing a shorter term, the loan can be repaid much quicker.
These are similar to conventional loans as they are issued by banks. However, instead of being sold on, as is customary with conventional mortgages, they are kept within the bank’s portfolio.
As mentioned above, these are another option for families or individuals on a low to moderate income. The Consumer Financial Protection Bureau states that FHA loans require only a 3.5% down payment.
These types of real estate loans only need a credit score of 500, but they do require mortgage insurance premium payments to be made.
There are more borrowing options for those looking to purchase real estate, such as private lending, but these are some of the most common you are likely to come across.
They are all good borrowing options depending on your requirements. Some such as hard money loans will only suit a certain type of individual such as a property investor, whereas others such as a conventional 97 loan would be perfect for first-time buyers.