Marsh Landing Realty

Home Loans…the 411

There are many different and important decisions to be made in the home buying process. As a prospective home buyer, taking the time to research the different types of mortgages is just as important as the research you put into what neighborhood you want to live in. Applying for a home loan can be complicated but deciding what type of mortgage best fits your needs, early on, can help direct you to the type of home you can afford. There are a number of types of home loans to choose from, and we are here to help you better understand some of the most common ones.

Start With Getting Pre-Approved

The current state of the real estate market right now is fast, quick, and competitive, with many homes going under contract the first several days they are listed, sometimes with multiple offers! Taking the time to go through the mortgage pre-approval process is almost a necessity today if you want to position yourself as a legitimate buyer and have a chance at securing the home of your dreams. Already having a pre-approval letter that guarantees you won’t be denied a mortgage is very appealing to both sellers and their agents! And on top of those benefits, your pre-approval will give you a much better idea of the loans you can actually afford, which will allow you to search within your budget sooner rather than later.

The Most Common Types of Home Loans

Depending on the type of mortgage applicant you are (first-time home buyer, refinancing, downsizing, upsizing), there will be several advantages and disadvantages of home loans. Here is a break down of some of the most common types of home loans available today:

  • A Conventional Loan is one of the most common types of loans available, however, this loan has stricter regulations on your credit score (will need at least a 620 to qualify) and debt-to-income (DTI) ratio. If you are able to manage at least a 20% down payment, you can skip buying private mortgage insurance (PMI) and are able to take advantage of lower interest rates.
  • An Adjustable-Rate Loan are 30-year loans with interest rates that change depending on the market. Typically, you will agree to an introductory period of fixed interest for 5, 7, or 10 years, where you will pay a fixed interest rate that is usually lower than 30-year fixed rates. After the period ends, your interest rate will change depending on the market at the time. Adjustable-Rate loans also include rate caps, dictating how much your interest rate can change over the lifetime of your loan.
  • A Fixed-Rate Loan is just the opposite. The interest rate and principal/interest stay the same throughout the duration of the loan. Your payment may fluctuate due to changes in property tax and insurance rates, but for the most part, Fixed-Rate loans can offer a very predictable monthly payment.
  • A Government-Insured Loan are backed by government agencies and come in three types: FHA, VA, and USDA loans. These loans tend to be less risky for lenders because the insuring agency will take care of the bill if you happen to default on your loan. Each of the Government-Insured loans have specific criteria you need to meet in order to qualify.
  • A Jumbo Loan is for those wanting to purchase high-end homes that exceed the limit set by Federal Housing Finance Agency and is not eligible to be secured by Fannie Mae or Freddie Mac. These loans usually come with unique underwriting requirements and tax implications and require stellar credit and low debt-to-income ratios.
  • Lastly, a Construction-to-Perm loan is a special loan used to finance the cost of buying land, building a home on it, and later serving as the mortgage on the home once it’s complete. The loan converts to a fixed-rate permanent mortgage loan with a term for 15 or 30 years after construction is completed on the home.

Overall, the best type of home loan for you depends on your individual preferences and circumstances. Not sure where to begin? We are here to help! Contact us today and we will be happy to connect you to our preferred lenders to help navigate you through the process.

Share the Post:

Related Posts