Understand the Basics when Looking for a Home Loan
Preparing to buy a home can be intimidating – especially if it’s your first home. After all, it is likely one of the biggest purchases you’ll make in your lifetime, so there’s a lot at stake. And in addition to the financial magnitude of this milestone, emotions can play a significant role since you are searching for a place to establish roots and make lasting memories.
Once you’ve saved a sum of money large enough for a down payment, the next step is to get pre-approved by a lender so you have an idea of how much you can afford to spend on a home. When determining your budget, you must factor in property taxes and homeowner’s insurance in addition to the amount you will pay toward the principal and interest on your mortgage. Depending on which type of home loan you qualify for, you may be able to roll those payments into your monthly mortgage payment.
You’ll want to consult with a mortgage representative to learn about the different types of loans available to you. Here are four types of loans to consider:
Conventional Fixed-Rate Mortgage
A “conventional” mortgage is one that meets established guidelines for the size of the loan as well as your particular financial situation. A fixed-rate mortgage comes with an interest rate that does not change the life of your loan. Borrowers with a good credit standing who opt for conventional fixed-rate mortgages are often given lower interest rates than those who enter into jumbo, FHA, or VA loans. While most conventional fixed-rate mortgages have a term of 30 years, they can be as short as 10 years.
Hybrid Adjustable-Rate Mortgage
A Hybrid Adjustable-Rate Mortgage — or “ARM” as it is commonly referred to — is a type of loan in which the interest rate is fixed for a period of either 5, 7, or 10 years and then becomes adjustable. Borrowers who enter into this type of loan are typically trying to purchase a home very quickly in order to avoid rising home prices. The upside is that they can enjoy a low-interest rate for the first few years of their mortgage, but they run the risk of much higher rates once the loan transitions to adjustable.
The Federal Housing Administration (FHA) offers loans that backed by the government and permit borrowers to devote significantly less money as a down payment on their home – as low as 3 percent in fact. The qualifying standards for FHA loans are generally more flexible than those associated with conventional loans, making it ideal for borrowers with lower credit scores.
The U.S. Department of Veteran Affairs guarantees loans (offered by private lenders) with very attractive terms for active service members, veterans, and eligible surviving spouses. VA loans are fixed-rate loans that can provide up to 100 percent financing, so borrowers do not need a down payment in order to purchase a home. If you believe you may be eligible for a VA loan, be sure to have your active service or military discharge paperwork readily available. It is important to note that VA loans may only be used to purchase a primary residence.
So, are you ready to get on the path to owning your first home? Contact a knowledgeable loan representative at Cliffco Mortgage Bankers for more information today.