With this super-simple breakdown of loan types, you can be sure that you can pick the right one.
First you need to define your situation. This is how you can choose the best program for your needs. How long do you plan to stay in this home? Are you anxious about changing loan rates? Ponder this before you start talking to lenders
Lets take a look at some mortgage types and at the end of the article you will see the top rated lenders to work with for each situation.
Mortgages Are (1) Fixed-Rate or (2) Adjustable.
The most common mortgage is the fixed rate mortgage.
A fixed-rate mortgage:
- Lets you lock interest rates for 15 or 30 years. There are some other yearly options. That means your monthly payments remain the same until you pay them off. (Your property taxes and insurance premiums probably will change over time.)
It’s ideal when: You want long-term stability and want to stay put.
Now let’s get into adjustable-rate, the other type of mortgage you’ll be looking at.
An adjustable-rate mortgage (ARM):
- As lower interest rate than a fixed-rate mortgage for an initial period of time, but usually introductory rates only last 2-7 or so years. The rates go up after that
- Has caps that protect how high the rate can go.(make sure to read the fine print.)
It’s ideal when: You plan to live in a home for a short time or you expect your income to go up to offset potentially higher future rates.
Ask your lender to calculate the highest payment you may ever have to make. You don’t want any surprises.
Conventional Loan or Government Loan?
Which fixed-rate or adjustable-rate mortgage you qualify for is determined by your lifestyle.
- Offers many of the most competitive interest rates. Typically you can get one more quickly than a government loan because there’s less paperwork.
Typically, you need at least a credit score of 620 or above and a 5% down payment to qualify for a conventional loan.
Most conventional loans also have debt-to-income (DTI) ratio quotas. These compare how much money you owe (on student loans, credit cards,and other debts) to your income — expressed as a percentage.
A home loan that exceeds these limits is called a jumbo loan:
- Jumbo loans usually want a higher down payment and a credit score of at least 720. Sometimes there are exceptions to this rule.
- Loans secured by the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA) Rural Development.
Who qualifies?Depends on which government loan you’re looking at.
FHA loans are used by a broad swath of people, including those with lower credit scores and income.
If you’re in the military, a veteran, or a veteran’s spouse:
If your income is limited and you live in a small or rural town:
USDA loans are mortgages for limited-income home buyers in towns with populations of 10,000 or less, or that are “rural in character,” more info at https://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program
The next step.
Your real estate agent should be able to offer some insight, too. And because they don’t earn a paycheck from your loan selection, their advice about mortgages should be impartial.
For recommendations of top rated mortgage professionals call (248)905-1402