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Figuring Out Which Home Loan is Right for You

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Figuring Out Which Home Loan is Right for You

By Paul Gardner | Industry Topics | Comments are Closed | 1 February, 2021 | 0

You have found the home of your dreams and you are ready to move forward with the home-buying process. The next big decision you will have to make is which type of home loan is right for you. This isn’t as simple as it may sound because there are a number of different types of mortgages available and they all have different elements to them. 

So, before you start shopping around for the right loan, there are a few choices you need to make. 

First, you must decide if you want a fixed-rate or an adjustable-rate mortgage. With a fixed-rate mortgage, your interest rate will not change throughout the life of the loan, but it usually has a higher initial rate than an adjustable-rate mortgage. With an adjustable-rate mortgage, the initial interest rate is usually lower than a fixed-rate, but it can go up (or down) throughout the life of the loan. 

Next, you have to decide what mortgage term is best for you. The most common mortgage terms are 15 years and 30 years, but there are other options such as 10, 20 and 50 years. As you work through these options, be sure to keep in mind the total cost of the mortgage including the purchase price and interest over the length of the loan. 

When considering all of these options, make sure you have already worked out a budget. Be sure you know how much you can afford to pay not only in monthly payments, but in up-front closing costs and the down payment required for the type of loan you choose. Once you have all of this figured out, you are ready to research the best loan type for you. 

Most Common Types of Home Loans 

There are a few different home loan options to choose from based on your needs and circumstances, and each has very different terms and requirements. Here are the most common types: 

Conventional mortgage: Conventional loans are not backed by the government, so lenders typically charge a higher rate of interest and require a higher down payment than unconventional loans. With this loan, you will have to pay private mortgage insurance (PMI) if your down payment is less than 20 percent of the home’s value. 

FHA loan: An FHA loan is a mortgage insured by the Federal Housing Administration. These loans are designed for low- to moderate-income households because they only require a 3.5 percent down payment for borrowers with a credit score of 580 or higher. However, borrowers must pay an upfront mortgage insurance premium on top of the down payment.

VA loan: With a VA loan from the U.S. Department of Veterans Affairs, qualified active and retired military personnel can purchase a home with a $0 down payment and no mortgage insurance premium. Interest rates and closing costs are usually low with a VA loan. There is a funding fee, however, that is set based on a few different factors. 

USDA loan: Another government-insured loan is the USDA loan offered by the U.S. Department of Agriculture. This loan is for low- and modest-income borrowers who live in rural areas. There is no down payment required and interest rates are below market value. There is, however, an upfront mortgage insurance fee and a monthly mortgage insurance premium. 

Jumbo loan: If you live in an area with high home prices, you may be able to take out a jumbo loan. These mortgages have loan limits outside of those set by Fannie Mae and Freddie Mac. They also typically have very low interest rates. But, they do require a bigger down payment and a higher credit score. 

Deciding on which type of mortgage to secure is a very big decision. Before you choose one, make certain you understand your financial situation and research all mortgage types available to you. By doing so, you ensure you make the right choice for you.

Home Buyers, Home Loan, Title Industry, Title Insurance

Paul Gardner

Paul’s core practice centers on the examination of title and real estate transactions. He has extensive litigation experience, and has spent several years representing and advising lawyers, real estate agents, and insurance agents in connection with professional liability claims.

More posts by Paul Gardner

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