Buying a home is exciting and sometimes overwhelming! The financing part can be a little less exciting and causes many of my homebuyers stress. Most of this stress comes from the unknown. Becoming an educated buyer can help melt those fears and make you more confident about your decisions. Here are some common types of mortgages available.
Fixed-Rate or Adjustable-Rate
Fixed-rate mortgages are just that — fixed. They have a set interest rate that stays the same for the life of the loan, thus making your payments steady, no matter how long you finance for.
Adjustable-rate mortgages do not remain steady. In most cases, the rate will either change annually or will start off fixed for a set amount of time, say five years, and then become variable.
There are pros and cons to both types of mortgages. Check out this great comparison from the Home Buying Institute.
Government-Insured or Conventional Loans
The next decision you’ll have to make is to have either a government-insured loan or a conventional loan.
Government-insured loans include FHA, VA and USDA/RHS loans. Federal Housing Administration, or FHA, loans are available to all types of buyers, not just first-time buyers, as is commonly thought. The government insures the lenders in this case and allows for a low down payment of 3.5% of the purchase price. The disadvantage in this case is that buyers must pay mortgage insurance, making monthly payments higher.
VA loans are available to military service members and their families. The U.S. Department of Veterans Affairs offers these loans guaranteed by the federal government. What this means is the VA will reimburse the lender for losses should a buyer default on their loan. The biggest advantage to these loans is that borrowers can receive 100% financing — meaning absolutely no down payment is required.
USDA/RHS loans are for rural borrowers who meet income requirements. The Rural Housing Service manages these loans and offers them to “rural residents who have a steady, low or modest incomes, and yet are unable to obtain adequate housing through conventional financing.” A borrower’s income cannot be higher than 115% of the adjusted area median income, which varies by county.
Conventional loans are simply independent and are not insured by the federal government in any way.
Jumbo or Conforming Loans
Your last decision is whether to use a jumbo or conforming loan. Conforming loans meet the underwriting guidelines set by Fannie Mae or Freddie Mac. A jumbo loan, however, exceeds those conforming loan limits and presents a higher risk for the lender. If you’re going for a jumbo loan, be sure you have superb credit and a larger down payment ready. Your interest rate is likely to be higher, as well.
I’m here to help you as you navigate the real estate and mortgage pathways that lead to becoming a homeowner. I’ll answer your questions, help you learn the terminology and walk you through every step! And if you need a lender, I can refer you to one whom I know will take good care of you. Talk to me today!