How to Navigate the Different Types of Home Loans

Ready to move and buy your first home? Confused about what to do and how to proceed?

There are innumerable steps to consider, but one of the main things you want to settle on first is the type of loan you need to buy a home. There are different loan types available when you search for homes and properties for sale in Nassau County, Florida. Finding the most suitable fit may take a bit of time. Below we cover the seven main types of home loans in Fernandina Beach. Not all loan types will match your specific situation and needs, but each one has pros and cons worth exploring when you settle in to buy your first family home.

Two men shaking hands over paperwork

Fixed-Rate

A fixed-rate mortgage loan is the most predictable type and is great for buyers who want a very consistent mortgage. No matter what happens in the industry, the interest rate is fixed- it stays the same for the life of the loan. While the rate may be (slightly) higher than other variable type options, it is a safe and smart way to go for a consistent monthly mortgage bill.

Variable-Rate

Unlike a fixed-rate, a variable-rate will charge interest based on market fluctuations. This could be good- it could be bad- but it is all dependent on many outside factors. Typically, variable rates begin lower and tend to increase as time goes on. If you are far more comfortable with a predictable mortgage, this may be the best way to go.

Hybrid Loans

Hybrid loans come in many forms, but they are traditionally a mix between variable and fixed. Instead of the loan remaining fixed for its life or variable for its life, it changes over time. A common structure type is for the loan to begin fixed for a five or 10-year period and turn variable after this time. It is common for a banker to help negotiate loan terms based on your situation. Hybrid loans are helpful if you want to pay a lower interest but also want greater mortgage rate predictability.

Conventional Loan

You may hear the term ‘conventional loan,” and this is just a loan that is not backed by the government in any way. It could be provided by a major bank or a small local finance company. Regardless, both fixed and variable rate loans can be conventional.

Many forms of conventional loans are provided through small banks, and usually require upfront costs for the down payment, closing fees, etc.

Balloon

Balloon loans are interesting because they are structured fundamentally different from the typical consumer mortgage. Balloon loans are based on upfront interest. For the beginning of the loan, typically three to seven years, interest is paid (either fixed or variable, though usually variable).

Afterward, the remaining balance of the loan is due in full.

This approach is usually more appropriate for investors or owners who are close to putting in the full principal balance of the loan when the initially buy it. It is a common approach for buyers who are seeking a vacation rental property.

FHA Loans

FHA loans are backed and approved by the Federal Housing Administration. There are many stipulations involved with this loan type and they are often sectioned-off for first-time buyers. Though it is important to note that any home buyer can be eligible for an FHA loan and it is not exclusive for first-time buyers. It does, however, require a minimum credit score (about 500) and some amount of down payment (usually around 3.5% to 4%).

Specifics may vary, but they typically have lower down payment requirements, fixed interest rates, protective measures for repayment, and the limit on what houses are approved and available through FHA.

VA Loans

VA loans are exclusively offered to veterans. The loan is backed by the Department of Veteran Affairs. The main feature of a VA loan is the waiving of a down payment. Outside this, they can be structured in various different ways.

These are just a few of the main Fernandina Beach, Florida mortgage loan types. Speak with an agent for a comprehensive overview of what is available to you and what loan type will most suit your situation. View our featured properties in Fernandina Beach to find the best home for you.