What Is a Home Loan?
A home loan, in its simplest form, is a loan that you take out to secure the purchase of your home. Also known as a mortgage, home loans are a fairly typical type of loan that most people will take out in their lifetimes. The typical home loan can be divided into one of 4 categories:
- FHA Loans
- Conventional Loans
- VA Loans
- Jumbo Loans
Each category has its advantages and drawbacks. Typically FHA loans are easiest for a borrower to qualify for. Usually they have a low initial down payment and don't require a high FICO score. Any licensed FHA Approved lender can offer a FHA loan. FHA simply designates the loan as protected (insured) by the Federal Housing Administration. Unfortunately, FHA loans typically end up costing more over the course of the payments as you are paying an additional mortgage insurance fee.
Conventional Loans cost less over time than a standard FHA loan. However, you will have stricter qualification requirements. They do not require higher down payments, but the bigger your down payment, the less likely you are to have to pay for private mortgage insurance. These loans are typically only offered to those with higher FICO scores.
The only way to qualify for a VA loan is to be a veteran of the armed forces, an active duty service member, or the surviving spouse of a service member. Typically VA loans have perks such as no down payments, or no mortgage insurance.
Jumbo Loans are massive loans that exceed the typical loan limit. These loans can cost a lot of money over time and require impeccable FICO scores and large down payments.
There are other loan options available to you outside of Home Loans and Mortgages.
A personal loan is a borrowing mechanism through which you can approach a lender and get funding to meet your financial objectives. There are several reasons a Personal Loan is a better option for you.
For starters, if you foresee and immediate expense and have no means to cover it, then a Personal Loan will give you immediate relief. Another advantage of getting a Personal Loan is that settlement of the borrowed amount is not demanded by the borrower on an immediate basis. Most personal loans are facilitated through financial institutions like a bank. The repayment of the borrowed amount is done in easy installments, and it will not burden you. If you intend on availing a Personal Loan you should understand its types.
The Different types of Personal Loans
- Secured Personal Loans
These are long-term low-interest loans over which a financial institution requires some form of security. The security can be in shape of collateral, cash margin, or any other valuable assets that you must pledge with the borrower to secure a loan.
In secured personal loans, you can apply for home loans, auto loans, long-term credit lines for procurement of business materials.
There are many advantages of secured loans. As a secured loan is backed by tangible security, the lender easily approves the loan amount if the security is credible and verified. A secured loan is also offered on a low-interest rate and is spread over a long repayment schedule. That makes secured loan easily payable.
However, if you do not have a tangible asset to present as security and your financial needs are not extensive another type of Personal Loan you can consider is the unsecured personal loan.
- Unsecured Personal Loans
This type of loan provides funding in a lesser amount that is repayable in a tenure of few months to up to a year. The lender approves such loan at high-interest rates as the exposure to risk for a lender is also high. In case of default, the lender does not hold any tangible security as a backup and can suffer a complete loss.
The types of personal loans are credit cards, balance transfer facility, and short-term credit lines. The advantages of an unsecured personal loan are that it is readily offered and can be availed easily if your previous financial history is without defaults.
While the prospect of getting a personal loan may seem daunting but the entire process is fairly simple and if you comply by the financial institution documentation requirements you will be getting a personal loan in a matter of days.
You should be aware of the types of loan and its significance. While a long-term secured loan may give you a longer tenure for repayment, however, by pledging your assets as security and if there is a default the financial institution may dispose of your assets to make their recovery.
In unsecured loan where your assets are not at stake, you will have to deal with high interest rates. A best personal loan option for you is the one that meets your financial objectives without putting you through many financial obligations. There are financial advisers in the lending institutions that can provide you with a reliable and practical loan plan.