While you can save up and make a home purchase in cash, most people just don’t do this. It would take forever to save that much! The most popular way to finance a home purchase is to take out a mortgage through a traditional lender, such as a bank. There are different types of mortgages you should know about before making a home purchase.
The most popular mortgage is the thirty year fixed rate mortgage. You pay a fixed interest rate, so your payments remain the same. The loan will take thirty years to pay off if you don’t accelerate payments. People choose this option for a home purchase because it allows them to get more house for their money.
You can also get a fifteen year fixed rate mortgage. This allows you to build up equity more quickly with your home purchase. A fifteen year mortgage means a smaller home purchase, though, so it’s less popular.
Another option for a home purchase is an adjustable rate mortgage. This is good for a first time home purchase or for those who are going to be in a home for a short period of time. For this mortgage, you get a really low rate for an initial period of time and then your rate adjusts every year after that. It can adjust to a higher percentage, though, and your payments could end up doubling or tripling by the end of the loan. An adjustable rate mortgage, or ARM, should be considered from all angles before you take one out because it’s quite unpredictable.
All of these mortgage options can be good for a home purchase. Talk to a lender about what each option would mean for you.