If you are looking to purchase a new home, there are a lot of exciting things to consider like what your new home will look like. Less exciting for most people is considering what their new mortgage will look like. But if you are getting ready to purchase a new home, it is important for you to know that you have options when it comes to your mortgage, and for you to understand what each of those options are.
The Type Of Loan
Before you even start looking at the specific details of a mortgage loan offer, you must determine which type of mortgage loan is going to be right for you. There are many different types of mortgage loans available, including:
- FHA Loans FHA loans are federally insured by the Federal Housing Administration. These loans offer a down payment as low as 3.5% and tend to have looser requirements than a conventional loan does. FHA loans tend to be great options for buyers who have less cash to put towards a down payment or who have a lower credit score. However, FHA loans do require an upfront mortgage insurance and an annual mortgage insurance that typically gets added into your monthly mortgage payments over the term of the loan.
- Conventional Loans most mortgage loans are conventional loans. Conventional mortgage loans are not insured or guaranteed by any type of government agency. Because these loans carry more risk to the lender, credit and income requirements may be stricter. Most conventional loans require a minimum of a 5% down payment, but if you do not make a down payment of at least 20% you will typically be required to carry additional private mortgage insurance (PMI) until your home equity reaches 78%. Because conventional mortgage loans typically have stricter requirements, they tend to be a great option for buyers with good or excellent credit and the necessary funds for a down payment because they tend to have lower overall costs.
- VA Loans VA loans are federally insured loans by the U.S. Department of Veterans Affairs. These loans do not require a down payment or mortgage insurance, as long as the sales price does not exceed the appraised value of the home. VA loans are a benefit offered to veterans and active duty military. In order to qualify for a VA loan, a person must be a current or former member of the U.S. armed forces, or the current or surviving spouse of a current or former member of the U.S. armed forces.
- USDA Loans USDA loans are federally insured loans by the U.S. Department of Agriculture. These loans do not require a down payment and tend to have lower mortgage insurance premiums, however the loans do have special requirements to qualify. USDA loan borrowers must meet certain household income limits for the area where they want to buy a home, and the house must be located in an eligible rural area.
Each different type of mortgage loan is designed for a different situation, so choosing the one that is right for you will rely on your specific situation. Work with your professional mortgage broker closely to make sure you are choosing the right type of loan for you as this decision will affect the amount of money you will need to have towards a down payment, the overall total cost of your mortgage loan, whether you need to carry mortgage insurance, and how much money you can borrow.
Contact American Dream Home Mortgage today to begin your home buying process with one of our professional mortgage brokers. We look forward to working with you to determine which type of mortgage loan you want, what terms and conditions you want to have included in your mortgage loan and shopping your mortgage loan options with different mortgage lenders to find the right loan for your needs.