When it comes to finding the right mortgage for your new home purchase, we know that there are a variety of loan options available. Below you’ll find information on the most common loan products, but it’s important to note that product availability may vary from state to state.
Fixed Vs. Adjustable Rate Mortgages
When you’re purchasing a new home, one of the first things you’ll need to decide is whether you would like a fixed rate or adjustable rate mortgage. There are multiple factors to consider when making the decision, including your current and future financial picture and how long you plan to stay in the home.
Fixed Rate Mortgage
A fixed rate mortgage is a home loan that will have the same interest rate for the duration of the payment period. This means that your monthly payment will remain the same, year over year, for the entirety of your loan. For example, if you have a 30-year fixed mortgage, the amount of your principal and interest payments will stay the same, every month, for the entire 30 year period.*
*Note we are excluding taxes, fees, etc. that may change over the life of your loan to help illustrate this point.
Adjustable Rate Mortgage
An adjustable rate mortgage, better known as an ARM, is a home loan where the interest rate changes, or adjusts, over the life of the loan. Typically, the interest rate on the loan will be fixed for a period, and then adjust on an annual basis. For example, a 5/1 ARM mortgage, the interest rate will remain fixed during the initial 5-year period. After that initial 5-year period, the interest rate will adjust on an annual basis (every 1 year) based on market rates. ARM’s usually give borrowers the opportunity to qualify for a lower interest rate at the beginning of the loan. If you’re only planning to be in your home for 5-7 years, an ARM might be a great option for you, but you will run the risk of the rate increasing after the initial fixed period.
An ARM can also be a great option if you’re looking for lower upfront payments or looking to qualify for a larger loan amount. But if you’re ready to put down roots, a fixed rate mortgage might be a better option and offer more security. And remember, whatever your decision is, you may be able to refinance later down the road if your financial situation changes.
Explore Your Purchasing Power
Half the fun of buying a home is getting to explore different purchasing scenarios. Give one of our high power mortgage calculators a go. With just a few clicks of your mouse, you can explore how much house you can afford to purchase.
Government Issued vs. Conventional Loans
Government loans are either insured completely or in part by the US Government (such as FHA or VA) A conventional loan, or ‘regular’ type of loan is not insured or guaranteed by the federal government. Government loans typically have lower down payment and credit score requirements, but cap the amount of money that can be borrowed.
There are 3 Government-insured home loans:
The U.S. Department of Veterans Affairs (VA) is a home loan program for military service members and their families, and are guaranteed by the federal government. VA Loans are available to eligible veterans who wish to buy a home or build a home. The VA Home Loan program allows those who qualify an opportunity to finance a home with no money down, at competitive rates and no monthly mortgage insurance. VA Loans include other benefits for veterans as well, including reduced closing costs, no private mortgage insurance (PMI) or penalties for prepayment. In order to be eligible for a VA Loan, a Certificate of Eligibility from the VA must be presented.
The United States Department of Agriculture (USDA) offers a loan program for rural borrowers who meet certain income requirements. The program is designed to help low- or moderate- income borrowers buy, repair or renovate homes in rural areas (and some suburban areas too). For additional information about USDA loans and to check on property eligibility, please visit the USDA Eligibility Website or give us a call and we would be happy to help.
FHA loan are mortgages insured by the Federal Housing Administration. This loan program is designed for borrowers who are struggling with down payments or have less than perfect credit. It’s a popular choice for first time home buyers. The FHA Loan program has a low down payment option and lower credit score requirements. Buyers exploring an FHA loan should be aware that there is a monthly mortgage insurance premium for FHA loans that will last the life of the loan.
Conforming vs. Jumbo
The final property of home loans, is based on the size of the loan. Depending on the amount of money you’ll need to purchase your new home, you will either fall into the conforming or jumbo category.
A conforming loan is a loan that meets the underwriting guidelines of Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are government controlled corporations that purchase and sell mortgage-back securities. Every year, Fannie Mae and Freddie Mac set loan limits and any loan above these limits is considered non-conforming (or more commonly known as Jumbo). In 2018, the conforming loan limit in most areas of the country is $453,100.
Any loan which exceeds the the conforming loan limit of $453,100 is considered a Jumbo (or non-conforming) loan. Lenders may require higher credit scores, a higher debt to income ratio or higher down payment to qualify for a Jumbo loan. That being said, there are some great Jumbo loan programs, with lower down payment requirements that can help borrowers purchase higher priced homes.
When you’re ready to start looking for a new home or refinancing an existing mortgage, it’s important to connect with a Lender early in the process to explore your financing options. If you’re ready to get started, or have a question, please don’t hesitate to reach out to our team. We’re here to help: (866) 369-5853 or Info@homevantgage.com.
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