Many factors influence which type of mortgage is best for you, such as your current financial situation, expected borrowing expenses, and qualifications. However, it's also important to consider your plans as well. Some types might be more suitable for a homeowner who wants to move into a new home soon or purchase another one after a few years. In short: many different combinations will suit other purposes, but it is important to understand all of them before making an informed decision.
The Conventional mortgage loan has been the most commonly chosen type of mortgage option in the past few years and is one of the most popular loans.
One major benefit of this type of loan is using different collateral. For example, as a homeowner, you have more opportunities to access a conventional mortgage than someone who isn't a homeowner.
The downside to this type is stricter qualifying requirements, such as having more borrower equity up-front or needing more income. Since this type also typically features higher rates and costs, it might not be your best choice if you're looking for affordability.
Another type of loan that is quite popular is the Conforming Mortgage Loan. These mortgages have the same requirements as a conventional mortgage with added benefits such as lower interest rates and more flexible terms that can help you make choices about your plans.
One downside to this type of loan is that, in some instances, it might not be able to help you qualify for a particular loan amount and can only be used for homes valued at around $417,000 or less. Aside from this, conforming loans typically have lower down payments and higher interest rates.
The other type of mortgage loan is the Nonconforming Mortgage Loan. These loans are similar to conforming but offer more flexibility and more substantial options. Some examples include allowing you to have less down payment relative to the property's value or allowing you to have a lower credit score.
However, these opportunities come with an added cost, and additional closing costs and fees can add up quickly. In addition, non-conforming loans also typically come with higher interest rates, so it's worth researching before deciding whether this is the best option for your current financial situation.
The federal housing administration (FHA) is a program through the United States Department of Housing and Urban Development that insures mortgages. With this type of mortgage loan, you'll have to pay a small upfront mortgage insurance premium but can benefit from lower closing costs and less stringent credit requirements.
Even if you have a low-down payment, these loans are available for people with a wide range of credit scores. So, if you're interested in affordability, these loans could be the answer to your home-buying woes. They also provide an additional life insurance policy allowing you to cancel your monthly payments without worrying about losing anything out of pocket.
The Veterans Affairs (VA) program is a United States federal agency that offers mortgages to service members, veterans, and certain people related to them. The primary benefit of this mortgage loan is that you could have no down payment and lower interest rates than the average mortgage loan.
On the flip side, VA loans come with strict qualifying requirements, such as having a lower debt-to-income ratio and higher credit scores. They require you to put in more money up-front but don't offer a life insurance policy as the FHA loans do.
A USDA loan is a guarantee by the U.S. Department of Agriculture to help you receive an affordable home loan to purchase a house in rural areas or designated underserved areas. It is available to any qualified homebuyer, regardless of income and credit history, and allows you to make lower down payments.
However, there are some limitations, such as being only able to borrow up to 97% of the home's value and having higher closing costs. You'll also get a lower interest rate on these loans, but make sure that your options are best for your situation and your plans.
No matter which mortgage loan you choose, it's important to know your options before deciding. The best way to do this is to consider your current financial situation, future borrowing or spending plans, the loan's credit score and down payment requirements, and any possible restrictions on the property that you're looking at.
If you have a low credit score or are overwhelmed by other financial obligations, then a more affordable option might be best. However, if you're getting close to retirement age or have a higher income, having fewer property value constraints might be best for your specific situation. The bottom line is that every mortgage option has its benefits, and it's worth doing your homework to see which one will work best for you.
If you're unsure which option to choose, contact us at Rose Group to answer your questions and concerns during the home-buying process.