When you first start the process of buying a home, you’re faced with an array of new terminology and concepts that might make you feel a bit intimidated. There are a million different financial situations a home buyer may find themselves in, and there may seem to be a million different loan types to appeal to those situations. Understandably, things can get overwhelming. If you’re feeling puzzled about which type of mortgage is best for you, we can provide some clarity.
Fixed or Adjustable-Rate?
The first thing you should do is determine whether you need a fixed or adjustable-rate mortgage, which differ in key areas and appeal to people who may have different expectations for the length of stay in their homes.
Fixed-rate mortgages are more predictable for borrowers and are usually longer-term than adjustable rate ones. With these, borrowers will have an interest rate that is, well, fixed – it won’t change. This rate will stay the same for the entirety of the mortgage, until you sell your home, refinance it or pay the whole thing off. These types of loans are ideal for those who expect to stay in their homes for a longer amount of time, like five years or more. Additionally, they’re good for home buyers in a market with rising interest rates.
Adjustable-rate mortgages, also called ARMs, are essentially the opposite of fixed-rate loans. Instead of having interest rates that are fixed, their interest rates change on a regular basis after a specified amount of time on a home buyer’s contract. This period of time can different greatly between ARMs, ranging from monthly to biannually to a number of other arrangements. These periods of time, too, can change during the course of a mortgage. These types of loans are appealing when mortgage rates are in a state of decline and buyers have a good chance of having low monthly payments.
Picking the Right Loan Type
When it comes to loan options, there are a ton, with each appealing to different types of buyers – some for those without sparkling credit, others for those who live in small or rural areas. No matter your situation, there’s a mortgage type that fits.
If your credit is less-than-perfect and you have doubts you can qualify for a mortgage, an FHA loan might be the pick for you. These loans allow borrowers to purchase a primary residence with a low down payment and are also insured by the Federal Housing Administration (the “FHA” in “FHA loan”). Those with credit scores of 580 or higher can potentially obtain financing through FHA loans. Those who have experienced events like bankruptcy, a foreclosure or short sale will receive shorter waiting periods than they would with a conventional loan.
With FHA loans, the minimum down payment on most types of properties can be low – as little as 3.5 percent, even. Relatives of borrowers who are non-occupants of the home can also assist the borrower financially in order to qualify. In addition, the entirety of the down payment on an FHA mortgage can be from gifted funds from a relative or charitable organization, which is ideal for aspiring homebuyers without immediate, available money.
The inverse of an FHA loan, conventional loans are great for those with average to outstanding credit and plenty of money for a down payment. Any mortgage that isn’t insured or guaranteed by the federal government is considered “conventional.” These also offer flexible repayment terms, allowing borrowers to pick between 10, 15, 20, 25 and 30-year periods. Those who opt for conventional loans may also enjoy lower rates given their healthy financial standing.
If you’re hoping to refinance or purchase a house costlier than the conforming loan limit of $417,000, a jumbo loan can help cover it. Jumbo loans from On Q Financial offer amounts up to $3 million with 30, 20 and 15-year terms available. Additionally, financing options are available for those with FICO credit scores above 680.
Aspiring homeowners who live in small or rural areas can benefit from USDA loans. Those in locations approved by the USDA (United States Department of Agriculture) Rural Development may be eligible to purchase a home with up to 100 percent financing on a fixed 30-year loan. Additional benefits include the absence of restrictions for first-time homebuyers and the possibility of using grants or gifts in some locations. Even those with low to average income can find themselves eligible for this type of mortgage.
VA Home Loans
Veteran homebuyers can benefit greatly from , which allow them to finance up to 100 percent of their home’s purchase price. This type of mortgage typically offer low interest rates, easier qualification, more lenient credit and income standards and zero prepayment penalties. Outside of veterans, members of the National Guard and Reserve, as well as those currently on active duty, may be eligible for this mortgage type.
If you’re a retired person looking to add some extra money to your income (and can survive off your house’s equity), you might consider a reverse mortgage. Reverse mortgages are a type of home loan available to seniors over the age of 62 that allows them to convert home equity into cash while, at the same time, voiding their monthly mortgage payments. These come in both fixed and adjustable-rate options and aren’t required to be repaid, so long as all loan obligations are met and the last remaining owner on the house’s title still uses the home as their primary residence.
Ready to Apply?
If you’re confident in the type of mortgage you need for your particular situation, our loan experts are standing by to help you every step of the way! Explore all our loan options to find out more about the loan that’s right for you.