Before buying a home, it’s important to find the right mortgage. However, there are a number of options for home loans to choose from. Potential borrowers will want to learn more about each of them to find out if they qualify and, if so, which one can help them save money or make it easier for them to start the buying process faster.
Fixed Versus Adjustable-Rate Mortgages
The first decision a buyer may make is whether they would like a fixed-rate or adjustable-rate mortgage. Many opt for a fixed-rate mortgage, as this means the amount paid toward the mortgage each month will be the same. Some parts of the payment, like the insurance, can vary from year to year, but a fixed-rate mortgage is relatively stable. Others, however, will want an adjustable-rate mortgage, as it can mean they’re able to save money if interest rates go down. It is a good idea to get information about adjustable rate mortgages to see if it’s possible to save money and, if so, whether it’s a good option.
A Conventional Loan
The most common type of loan is a conventional loan. These loans do have a required down payment of between 5% and 20%, and the borrower will need to have a higher credit score to be approved. The borrower must also have a lower debt-to-income ratio, and there may be other requirements based on the lender.
An FHA Loan
FHA loans are intended to help borrowers get a loan, even if they don’t qualify for a conventional loan. The down payment for these loans can be as low as 3.5%, and borrowers can have a credit score as low as 500 and still obtain a loan. There is a limit to the debt-to-income ratio, but it is higher than a conventional loan, so borrowers can still be approved if they have debt.
A VA Loan
For those who have served, a VA loan can be a great option. The borrower will need to request a Certificate of Eligibility from the VA to obtain this type of loan, but they may be able to get a loan with no down payment. There is no official requirement for credit scores, but most lenders will prefer to loan money to someone with a credit score of 620 or higher.
A USDA Loan
USDA loans are intended to help borrowers who plan to live in rural areas. There is no down payment for these loans, but the borrower’s credit score must be at least 620 and the debt-to-income ratio can’t be higher than 41%. There are also requirements for the house being purchased, as these loans are for homes in areas that are designated as rural.
Jumbo Loans
Those who are planning to purchase a home in a very high cost of living area or one that is more expensive may not be able to get a conventional loan to cover the full amount. In these situations, a jumbo loan may be needed. They are similar to a conventional loan, but intended for homes that are more expensive than what would be covered by a conventional loan.
If you’re thinking about buying a home, take the time to learn more about each of the loan types. This will make it easier to determine which one is right for your needs and give you a better chance of being approved. Talk to a mortgage broker today to get help or to learn more.
