Purchasing a new home is an exciting time in a person or couples life. You have made the decision to take that next step and get started with the home buying process. However to purchase a new home the majority of us will need to get a home loan. Home loans come in all shapes and sizes and getting the right home loan can save you a lot of money. So you might be asking yourself which home loans is right for me? Depending on your situation a specific loan option may save you a lot of money. For example, if you are a military service member or a veteran looking to purchase a new home, the VA loan program is designed specifically for qualified veterans. The VA home loan is designed specifically to help veterans save money. Or if you are considering purchasing a home in a rural area there is the USDA home loan to consider. The USDA home loan program has many benefits for people purchasing homes in rural development areas. It is important to take the time to research the different loan types available to you and your situation.
What Type of Home Loans are Best?
So what types of home loans are the best? Each mortgage loan option has its purpose and benefits for different situations. For example, let’s take a look at the FHA mortgage loan option. This is one of the more popular mortgage loans on the market. The FHA loan helps many first time home buyers that do not have a lot of money for a down payment. It’s a great loan option if you can’t put the traditional 20% down that a conventional mortgage would require. The benefits of an FHA is that it helps many first time home buyers get into a home with little money down and a very good interest rate. The negatives are that it requires you to pay the dreaded private mortgage insurance. PMI makes the FHA loan possible but it is also a drag because this portion of your monthly mortgage payment does not go to paying down your mortgage. This is a very basic example but the point is the FHA loan is a great option but it’s not ideal for the borrower that has more money to put down on a home loan.
The ideal situation for a borrower is to have at least 20% down, excellent credit and a low dept to income ratio. Unfortunately saving up 20% is not easy a feat, especially for younger home buyers that are just getting started with their careers. Luckily the banks have adapted and come up with products to help many different situations. So to answer your question what type of mortgage loan is best? Well, it depends on your current situation. There are many moving parts in the mortgage industry. Always consult with at least two different lenders. This way you can get the best possible rate and loan option for your unique situation. Below is a basic breakdown of the different types of mortgage loans.
Fixed vs. Adjustable Rate Mortgages
Fixed Rate Mortgage Options
- Interest Rate stays the same throughout the loan.
- Monthly Payment remains constant but will adjust will property taxes.
- Interest rates will adjust after an initial period of the loan
- Lower initial interest rate
Government Insured vs Conventional Home Loans
- Not insured or guaranteed by the federal government
- Usually, requires a higher down payment of 20%
- May have lower interest rates
- May not require mortgage insurance
The 3 Main Government Insured Home Loans
Conforming vs Jumbo Mortgage Loans
- You need a larger down payment
- You need to have excellent credit
- Meet Fannie May & Freddie Mac underwriting guidelines
- Needs to meet loan amount limit criteria
As you can see there are many types of mortgage loans available. There are no such things as one loan fits all anymore. Make sure and take the time to get a general overview of the different loan types. This will help you ask the right questions when speaking with a mortgage professional. If for some reason you do not feel 100% comfortable with the mortgage lender you are consulting with seeking another one. Do not let anyone push you into something that you are not ready for. The last thing you want to do is risk hurting yourself financially for the wrong loan decision. Taking out a mortgage is one of the biggest decisions of your life. so finding the right professionals is essential to your home buying success. The good news is there are a lot of really good mortgage professionals out there to answer your mortgage related questions.