Congratulations! You’re ready to buy a home. But before you start scouring the Multiple Listing Service (MLS), you need to secure a home loan. Use this guide to learn about some of the most common types of mortgages and which one works best for you.
The three most popular types of loans:
This is the most common type of loan, and for good reason. With a fixed-rate mortgage, the interest rate remains the same throughout the loan’s duration, which is typically 15 or 30 years.
Who should use this loan? Those who are interested in consistent housing payments or don’t plan to move anytime soon.
An adjustable-rate mortgage is a loan with interest rates that can change periodically. This type of loan typically begins with lower, fixed payments at an introductory rate. Following this introductory period the interest rate adjusts to current market rates.
Who should use this loan? People who plan to quickly pay off their mortgage; people who plan to sell their home before their fixed-rate period ends.
In an effort to make buying a home more attainable for Americans, the Federal Housing Administration offers FHA loans, which allow buyers to make a minimum down payment of as little as 3.5 percent.
Who should use this loan? People who have a weaker credit rating and/or don’t have enough money for a large down payment.
At the end of the day, talking to a mortgage professional will help you decide which type of loan is best suited for you.
Application documents checklist:
To be able to predict your financial future, lenders need to take a hard look at your past and present financial situations. Use this checklist to help you gather the necessary paperwork.
- Bank statements
- W2s from current and past employers
- Paycheck stubs
- List of all debts
- List of all assets
- Credit report
- Residential address for the past two years
- Landlord names and addresses for the past two years
- Proof of timely rental payments
- Divorce decree (if applicable)
- Gift letter (if using gift funds)
- Bankruptcy paperwork (if applicable)
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