If you’re thinking about buying a home, do your due diligence and research mortgage types to see what best suits your financial situation. There are several types of mortgages you should be familiar with before you commit to making an offer. Even if you’ve had a mortgage in the past, things have changed and it may not be as simple as it once was to get approval for a home loan. Here is a quick mortgage checklist to assist in your research:
Understand Fixed vs. Adjustable Rate
As a borrower, the first question to address is how you want to construct the loan, with a fixed or adjustable rate. Mortgage loans with a fixed-rate have the same interest rate for the life of the loan. The monthly payment will be constant each month and you can expect the same terms year after year until the loan is repaid. The other option is an adjustable-rate mortgage (ARM) which has an interest rate that adjusts over time. Usually, after an initial period of time with an introductory fixed-rate, the rate on the ARM will adjust which means a likely increase in the monthly payment moving forward.
Loans with Benefits
Government loans are insured by the government and provide protection to the lender in the event the borrower defaults. Federal Housing Administration (FHA) loans are available to all types of borrowers who qualify. This program allows borrowers to make a down payment as low as 3.5% of the purchase price. If you are a veteran, the Department of Veterans Affairs (VA) offers a loan similar to the FHA program. This means the VA will reimburse the lender for any losses that may result from borrower default. However, in this program, borrowers can finance 100% of the purchase price of a home with absolutely no down payment. For borrowers in rural areas, there is the United States Department of Agriculture (USDA) loan program for borrowers who meet certain income requirements. The program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture. This mortgage is available to modest income rural residents who don’t have the credentials to obtain adequate financing through conventional types. In this case, mortgage payments are based and adjusted on income.
The Other Option
If you don’t qualify for a government backed loan, there is still the conventional mortgage option, This home loan isn’t guaranteed or insured by the federal government but conforms to the loan limits set forth by Freddie Mac and Fannie Mae, a government sponsored enterprise that provides a secondary market in home mortgages. A down payment is required on a conventional loan, usually 15-20% of the purchase price is the standard.
Applying for a mortgage doesn’t have to be an unpleasant experience, if you arm yourself with the right information and the right real estate agent. Let me help you sort through the research and find the best mortgage to provide future economic and financial stability for you and your family. Contact George now to get started!