As a homeowner, you aren’t lacking in types of mortgage loans. There are all sorts of loan types available that are suited for different situations, so don’t assume that you’re limited to just one or two choices. While some lenders may only offer one or two types of loans, looking around may just open your eyes to the many, many opportunities around.
Whether this is your first time buying a home or you’ve been through the process a couple of times before, it’s always good to know what options are available to you. You can contact a Mortgage Broker in Brisbane and he can explain these options to you.
Although not a complete list, here are a few of the loan types that you may want to look into for your next home purchase.
#1. Conventional Loan
Conventional loans are typically what a person thinks about when they imagine a mortgage: a 20% down payment and a 15- or 30-year loan term. These are fixed-rate loans and are great for those who don’t plan on moving any time soon.
Although the traditional down payment amount is 20%, in some cases, you may be able to pay as little as 3% down. If you do, though, you’ll be expected to pay private mortgage insurance (PMI) until you reach 20% equity.
To qualify for a conventional loan, you’ll need a credit score of at least 620 and a debt-to-income ratio (DTI) of less than 43%. You can also expect to provide numerous documents before being approved: proof of income, assets, down payment, and employment.
#2. Adjustable-Rate Mortgage
Adjustable-rate mortgages start out with a fixed interest rate for a few years and then adjust every so often. You’ll typically see 5/1 ARMs, meaning that the interest rate is fixed for five years and then adjusted every year afterward.
With ARMs, you’ll often pay a lower interest rate during the first few years. Once the adjustment period starts, your loan payments may become unpredictable as interest rates rise or drop. You’ll be expected to continue paying your mortgage monthly, though, and failure to do so will result in default.
If you plan on moving or not having your mortgage for too long, ARMs are a good choice due to the lower interest rates at the beginning. After that, though, they may become harder to pay as monthly payments fluctuate.
#3. FHA Loans
FHA loans are great low downpayment loans. With a downpayment requirement of only 3.5%, FHA loans are government-backed and are fixed-rate mortgages that last either 15 years or 30 years. FHA loans are particularly useful for those who are struggling to come up with a large downpayment for their first home purchase, and can also be used to purchase a condominium with fha condo approval.
With a lower credit score requirement of only 500, FHA loans tend to be easier to get. For instance, the FHA loan requirement in PA (Pennsylvania) only requires a 3.5% down payment and a credit score of at least 580. If you meet these criteria, you can secure a home loan. Unfortunately, just like a conventional loan with a low down payment, you’ll need to pay mortgage insurance premiums (MIP) which will be charged monthly.
#4. Jumbo Loans
For those who are searching for loans in high-cost metropolitan areas, regular loans are rarely enough to buy a home. It can be hard to find a loan that doesn’t have a conforming loan limit on it, but jumbo loans are a great way to get around this.
Jumbo loans are good for those looking for homes in New York, San Francisco, Los Angeles, or other high-cost areas, but they can be difficult to qualify for. Due to the nature of the loan, lenders want to be sure you can pay it back. To qualify for a jumbo loan, you’ll need a credit score of 700 or higher, be able to pay a 10-20% downpayment, have a DTI of less than 45%, and have significant assets in cash or savings accounts.
#5. USDA Loans
If you’re looking at buying a home in a rural area, you may be eligible for a USDA loan. You don’t need to be a farmer to qualify, just check your potential home’s location to see if it’s in a USDA-eligible location.
There are income limits for USDA loans, but they have no downpayment requirements. You can expect to pay an annual fee, though, as well as a fee of 1% of the loan that can usually be financed into the loan itself.
#6. VA Loan
For veterans and active-duty military members, the VA offers home loans with no downpayment, no MIP, and no minimum credit score requirement. There is a funding fee which is usually a certain percentage of the loan, but it can be rolled into the loan costs along with other closing costs.
VA home loans are a way to help veterans and their families afford a home, but they are government-backed and have certain property requirements. You can’t, for example, buy a fixer-upper and the home must be your primary residence.
#7. Interest Only Mortgages
These mortgages are a little different. With interest-only mortgages, you spend the first ten years or so only paying the interest charges. After the set period, you’ll need to either start paying back the loan along with interest charges, pay off the loan entirely, or refinance.
Interest-only mortgages are only ideal for those with enough discipline to pay occasional principal payments and who don’t expect to remain in their home for very long. They’re also good for households with large savings accounts, a high cash flow, or an income that varies from month to month. When possible, you can pay large portions of the principal and when you can’t, you can pay off the interest.
You Have Options
When it comes to hunting down the perfect mortgage loan, you have options. Even if you don’t find a mortgage that you’re 100% happy with, you have the option to refinance in the future through other lenders.
Buying a home is a major milestone and will take a lot of planning and financing. You can’t expect to just walk into a real estate office and buy a home. Instead, take some time to carefully consider your mortgage options and do some preliminary research to see which loans you’re likely to be approved for as well as how much you’ll be approved for.
Don’t be afraid to explore your options before committing. You’re more likely to feel confident in your choice and you may just discover the perfect loan.