Housing Loans are loans which are used to purchase a housing unit. In the US, loans like these can be provided by private lenders and government-sponsored agencies, such as Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). However, it is typically a bank that provides the loan. The amount of loan depends on what type and value of housing unit is purchased.
How to find the best Housing Loans
1. Go for the best loan interest rate.
This is a very important factor as every percentage point of difference in interest rate can translate to thousands of dollars over the life of the loan. Ask your lender if there are special rates for fixed or adjustable rate loans.
2. Choose a loan term that fits your investment goals and timeframe.
A longer-term fixed-rate loan may offer the lowest rate but it comes with the disadvantage that the rate cannot be adjusted downward if interest rates decrease while you are locked into the loan. On the other hand, an adjustable-rate loan may offer a lower initial fixed rate but it also comes with the risk that your monthly payments could increase significantly later when rates rise again.
3. Ask the lender what they can do to help you minimize monthly payments and overall interest costs.
Are there any discounts or rebates? Pension plans? Other government assistance programs that can reduce your payment? Will the lender permit you to refinance the loan at a lower rate when interest rates improve?
Pluses and Minuses of Housing Loans
One of the biggest advantages is that housing loans are very flexible in terms of cost. They may be used for a variety of purposes, such as to purchase a house, condominium, or residential lot. They may also be used to pay off a construction loan, or to refinance an existing mortgage. A housing loan can be fixed-rate or adjustable-rate and can be structured in a variety of ways depending on the borrower’s needs.
The most significant disadvantage is that the borrower has to pay the interest if they cash out the equity in the property. Interest is charged on the appreciation, which means that if a home appreciates from $100,000 to $120,000 and has 20% equity built up, then $24,000 would have been borrowed against it. With 20% down payment (loan), then interest is paid based on the remaining 80% ($24,000 divided by $120,000).
