If you want to buy a home, chances are you will be looking at different types of mortgages, but it can be difficult to find the best deal. With so many options available, it can be almost impossible to know where to start, so you want to make sure you have options that will save you the most down payments, fees and interest.
Below are some of the most popular options to determine which options you should apply for.
Conventional loans can be quite large and vary in terms of down payment and length, but are very flexible. When applying for a conventional loan, a lender will check your credit rating, debt-to-income ratio and require a down payment of 5 to 20%. It is important to note that even with less than 20% down on a conventional loans, additional fees (Private Mortgage Insurance) are due. They often have stricter requirements than government-backed loans, but are easy to get if you have good credit and can cover closing costs.
There are generally two types of conventional loans: conforming and non-conforming. In this case, a conforming loan simply means that the loan amount is within the limits set by the Federal Housing Finance Agency. However If you plan to move any time soon and do not believe that you will meet the asset requirements, this is probably not the best option.
Most loans given are fixed-rate mortgages, where the interest rate is fixed for the entire term of the loan. The average time frame on a fixed rate home loan with is 15 to 30 years. While you would save a lot of interest on a 15-year loan, your monthly payments would be much higher.
An advantage of a fixed rate mortgage is its ease and predictability when it comes to budgeting. You can rely on a consistent amount for your monthly payments without worrying too much. The flip side being the rate is potentially set at a time when your rate might be high, you are stuck with a higher rate for the life of the loan.
Adjustable Rate Loans
These loans have interest rates that change over the life of the loan, depending on rates rising or falling. ARM loans can cost you more in interest, especially if the interest rate rises dramatically in the future. Both fixed-rate and ARM loans have a higher interest rate than a traditional fixed-rate loan, which can be a burden.
Home buyers with low credit scores are best suited to adjustable rate mortgages since a fixed rate loan would typically include a high rate. Also, adjustable rate mortgages can push mortgage rates, making home ownership more accessible.
FHA loans, which are government-backed, allow you to put down only 3% of your home. FHA mortgages can be a good option for people with low credit scores and low incomes, as well as people with limited financial resources.
The less strict restrictions make an FHA loan more attractive than traditional loans for low-income households. Often having lower credit score requirements. Although, if you are able to get a conventional loan an FHA loan may not be best with its long application process. Buyers of FHA-approved loans also must pay mortgage insurance in advance or during the loan’s term, which is about 1 percent of the cost of the loan.
In principle, jumbo loans generally require more detailed documentation to qualify for and can be more common in the higher cost range. If you don’t have the money to make a big down payment then it’s probably not an option for you because you need a loan that matches your minimum credit scores. However, bear in mind that whether or not you need a jumbo loan depends on how much financing you will need after closing costs. A Jumbo loan makes sense for wealthy buyers buying high-quality homes with good credit.
There is no one size fits all when it comes to home loans, that’s why we have the best inhouse loan officers to help with your financial situation. If you like to be prepared, find out what you can afford and fill out our zero-obligation application here.