Home Loans: The Ultimate Guide to Buying or Refinancing Your Home

Looking for the best home loans?  Read this guide to find the best mortgage for your needs.  Then, compare lenders to find the best rates and terms.

Conventional Home Loans (Mortgages)

Buying a new home can be exciting…and also stressful. Figuring out the financial details, and how you’ll pay for it, can be frustrating and confusing.

Luckily, you can set your mind at ease by researching the following types of mortgages.

Conventional mortgages are not backed by the government. And you’ll need good to excellent credit to qualify.

Fixed Rate Mortgage

A fixed rate mortgage is the most popular type of mortgage. For the duration of the mortgage, you’ll pay a consistent monthly payment. This includes your principal and interest.

Note: your mortgage insurance and taxes could fluctuate but not your loan.

Best for:

  • Buyers that have good to excellent credit
  • Buyers that have saved at least 20% of the home value for a down payment
  • Buyers that want a fixed mortgage payment every month

Not for:

  • Buyers with bad credit
  • Buyers that haven’t saved for a down payment

Adjustable Rate Mortgage

An adjustable rate mortgage, or ARM, is a loan that has fluctuating interest rates. In simple terms, it means your payments go up or down based on several factors. The good news is this type of loan sometimes has lower interest rates than a fixed rate mortgage.

A popular ARM loan is the 5/1 ARM. This means you’ll pay a fixed rate over 5 years, and after that, you’ll pay fluctuating interest rates.

It’s a good way to lock in a lower interest rate in the beginning.

But it’s not for everyone.

Best for:

  • Buyers that want lower rates and payments earlier in the life of the loan
  • Buyers that want to buy more expensive houses
  • Buyers that don’t plan on living in the home for a long period of time

Not for:

  • Buyers that plan on living in the home for several years
  • Buyers that want consistent monthly payments over the life of the loan

Home Equity Loans

This a second mortgage on your home. Your first mortgage is what you used to buy the home. You can use a home equity loan for almost anything you need.

Note: you’ll need to have equity in your home if you go this route. If you don’t have equity, this loan is not an option.

Home equity loans have lower interest rates than credit cards and personal loans, which is a plus.

Best for:

  • Homeowners with poor credit up to excellent credit
  • Homeowners that have equity in their home
  • Homeowners that need to finance a large purchase or expense.

Not for:

  • Homeowners that have no equity in their home

Home Equity Line of Credit (HELOC)

If you need money to help you cover expenses, a HELOC could be an option you should explore.

You can use a HELOC to pay for things like:

  • Home remodeling, additions and repairs
  • College tuition expenses
  • Vacations
  • Medical expenses
  • Buy a car
  • Pay for a wedding
  • Pay off debts

A HELOC is similar to a home equity loan, but it works like a credit card. Here’s how it’s different: the lender gives you a line of credit based on how much you request.

You can access the funds whenever you want. But you cannot exceed the total amount of the credit line.

Government Backed Home Loans

FHA Home Loans

The Federal Housing Administration is a branch of the government. They offer mortgage insurance to FHA approved lenders that meet strict FHA guidelines.

An FHA loan is an option for buyers that have less than perfect credit…and don’t have 20% to put down as a down payment. With this loan, you’ll only need 3.5% of the home value as a down payment.

FHA approved lenders are more willing to entertain this loan.

Why?

Because the loan is backed by the U.S. government. In the event of a mortgage default, the government will cover the loss.

VA Home Loans

A VA loan is reserved for active military service members and veterans. And it’s guaranteed by the U.S. Department of Veterans Affairs. Remarried spouses are not eligible.

With a VA loan, you won’t need much, if any, for a down payment. Also, you’ll find more favorable rates and terms.

USDA Loan

If you’re a low-income wage earner, you might be eligible for a USDA loan. The USDA stands for “United States Department of Agriculture“.

This branch of the government offers special financing for people that earn low wages.

You can usually get a mortgage with little or no down payment and low interest rates.

And no, you don’t have to work in the agricultural industry to qualify.

There are a few guidelines you have to follow:

  • Must be a U.S. citizen
  • The property must be in a USDA approved residential area
  • You cannot use this loan for investment properties
  • The total amount of the loan cannot exceed 29% of your monthly income before taxes

First Time Homebuyer Loan

Looking to buy your very first home? There are several options you can consider. Many of which, we’ve already discussed.

  • FHA Loan
  • USDA Loan
  • Lease to Own Option

(Regarding the lease to own option, see below for more details.)

Bad Credit Home Loans

Have a bad credit? Want to buy your own home but lenders keep turning you away?

Well, we have a solution.

It’s called a “lease to own option” and it works great for people with bad credit.  This is how you get a bad credit home loan.

Lease to Own Homes

Here’s how a lease to own option works:

Homeowners (or landlords) that are stuck in a home and want to sell their house fast may negotiate with you.

While you won’t be able to get a conventional or government backed mortgaged, here’s what you can do:

How to Find a “Lease to Own Option” Home

  1. Find a home in the area you want to live that is NOT listed with a realtor. These homes are more often than not For Sale by Owner (FSBO). Sometimes realtors have this type of listing, but often times not. It won’t hurt to check. But check FSBO listings first.
  2. Round up about 10 homes in your area that fit your needs. Filter the homes by time on market. You’re looking for a home that has been on the market for a while. This gives you more negotiating power.
  3. Call each homeowner and ask if they are willing to do a lease to own option.
  4. If you find a few homeowners willing to do this, you are one step closer to being a homeowner.

Here’s how this arrangement works:

How to Setup a Lease to Own Option Contract:

  1. Once the seller is comfortable with this arrangement, you’ll draw up the contract.
  2. You may need to give the homeowner a deposit, which is a sign of good faith.
  3. You’ll make regular monthly payments to the seller, as if you’re paying a mortgage or rent.
  4. Some sellers keep a percentage of your monthly payments to use as the down payment. You’ll need this when you apply for the mortgage at a later date.
  5. During this time, you’ll need to start repairing your credit. Depending on the terms you set with the seller, you’ll need to be ready for a mortgage within 12-24 months.
  6. When you have your credit in good shape, you can then apply for a mortgage.
  7. Congratulations, you’re a homeowner.
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