6 Different Mortgage Programs: Which Is Best?

Getting the Best Mortgage

Are you a first-time home buyer or an experienced home owner trying to decide on a mortgage program? If so, you’ve come to the right place. 

With so many options, finding the best mortgage , you might be overwhelming. However, the key to success when buying a home is to be well-educated on every aspect of the process.  

Each mortgage loan has different standards and requirements. Therefore, doing some research about your options is the best way to make the right choice.

Some of the most popular mortgage options include conventional, fixed-rate, adjustable-rate, jumbo, bridge, and government-issued loans. Keep reading to find out what each one is about, and who they are suited for.

A conventional loan is not backed by a government agency. So, these types of mortgages are issued through private institutions such as banks and mortgage companies. 

There are two types of conventional loans: conforming, and non-conforming. A conforming loan refers to one that falls within the maximum limits issued by the Federal Housing Finance Agency (FHFA). On the other hand, a non-conforming loan does not meet those requirements. 

A conventional loan is a good option for anyone trying to finance a primary residence, an investment property, or even a second home. These are suited for people with good credit scores who have a steady income and can provide a down payment of at least three percent. 

Something to keep in mind about conventional mortgages is that they usually require private mortgage insurance if you do not give a downpayment of 20 percent. 

2) Fixed-Rate Mortgages

Fixed-rate mortgages are very common amongst borrowers. This mortgage option allows you to keep the same interest rate throughout the entire life of your loan. This loan is usually issued for 15 or 30 years.

Fixed-rate mortgages are usually suited for borrowers who appreciate predictability and plan to live in the property for a long time. So, if you are planning on staying in your home for most of the duration of the loan term, this might be a fantastic mortgage option for you. However, if you are looking to move soon after you buy the property, you might want to consider other options.  

There are many reasons why this mortgage option is amongst the most popular for borrowers. The biggest benefit of a fixed-rate mortgage is that the monthly payments and interest payments always stay the same. 

This is a huge advantage because you can make a monthly budget knowing that your housing payments will always be constant. Because interest rates are constantly fluctuating, getting a fixed-rate mortgage is a good way to ensure that your payments won’t increase if the rates go up.

3) Adjustable-Rate Mortgage

With an adjustable-rate loan, your monthly payments will change after certain periods. This mortgage option usually offers a lower interest rate for the first period of the loan (typically five or ten years). After that, the interest will be adjusted yearly to correspond with the current interest rates. 

During periods when interest rates are low, adjustable-rate mortgages are a fantastic option. However, something to keep in mind is that if rates go up, so will your monthly payment. However, the same concept applies if rates go down.

This type of home loan is great for anyone who is looking to sell their home a few years after the purchase. In addition, this mortgage option is good if you have a lower credit score. Since having low credit scores will not land you a good rate with a fixed mortgage, this option can make buying a home more attainable. 

Overall, the biggest benefit of this option is that you will initially have a lower rate. Sometimes buyers start with this type of loan and later refinance to a fixed rate if the condition of the market is favorable. 

1) Conventional Mortgages

4) Jumbo Mortgages

A jumbo loan is an example of a non-conforming conventional loan. This is a very common loan in higher-cost areas. This is because this type of loan exceeds the loan limits provided by the FHFA. 

Jumbo loans can have fixed or adjustable rates, and usually require more documentation to apply. To qualify for this loan, borrowers need a credit score of 700 or more, and a downpayment of at least 10 percent. 

This mortgage option is suited for someone who is looking to purchase a more expensive home. This is why this is a popular option in areas where real estate prices are more expensive.

Keep in mind, that whether you need a jumbo loan or not depends solely on the amount of money you need to borrow- not on the price of the home you are trying to buy.

6) Bridge Loan

A bridge loan is the best option for you if you are trying to purchase a home before selling your current one. This is why this type of loan is often called “repeat financing” or “gap loan.”

With this loan, your lender will group your new and current mortgages into one. Once you sell your current property, you can finish paying that mortgage and begin refinancing. 

This loan is suited for buyers who do not need to finance more than 80 percent of the two values combined. 

To qualify for this mortgage, you need a low debt-to-income rate and a great credit score. If you qualify, this is a fantastic way of relieving some financial stress if you are transitioning between two homes. 

7) Government Issued Loan

Although the government is not a mortgage lender, some government agencies back loans. Looking into these programs is a fantastic option if you don’t qualify for other programs. If you are looking for a government-backed mortgage, these are the programs that you want to look into: 

FHA Loans 

This is a type of loan backed by the Federal Housing Administration. This is a great program to look into if you don’t have a lot of money for a down payment or if you don’t have a fantastic credit score. 

FHA loans require borrowers to have a credit score of at least 580 to qualify for the maximum financing with a 3.5 percent down payment. If you have a credit score of 500, you can still qualify if you put a down payment of at least 10 percent. 

This loan requires two insurances; one has to be paid upfront and the other annually for the lifetime of the loan if you put less than 10 percent down. 

VA Loans 

VA loans are backed by the Department of Veterans Affairs. This type of loan provides very flexible and low-interest loans to active U.S military members and veterans. 

This type of loan does not require mortgage insurance or a down payment. In addition, closing costs are usually capped or paid by the seller. However, it does require a funding fee that can be paid either upfront, at closing, or rolled into the loan. 

USDA Loans 

A USDA loan is backed by the U.S Department of Agriculture. This is a loan that helps lower-income borrowers who are looking to purchase properties in a rural area. To be eligible for this loan, the property you purchase must meet certain requirements (like location, and income limits). 

In some cases, this loan does not require a down payment. 

How to Choose the Best Mortgage Program for You

Choosing the right mortgage program for you will highly depend on your specific needs as a borrower. However, your credit score, debt-to-income ratio, employment, etc. will all play a big role in determining what type of loan you are qualified to get. 

Once you thoroughly research all the types of mortgages available to you, look up different lenders and compare them. Create a list of things that are important to you when receiving a service, and talk to your realtor about the best option for you. Some lenders might offer more benefits than others, so make sure to take that all into consideration.

Once you find the best mortgage and lender for you, apply and get pre-approved! You should always do this step before house hunting. Being pre-approved will show sellers that you are a serious buyer, and will help you score the home of your dreams. 

Looking for Assistance? 

Finding the best mortgage option for you is one of the most important steps towards home ownership. With so many options, it might be an overwhelming process. However, researching all the types of mortgages available is the best first step to make a good and educated decision. 

Once you pick your loan and lender, the entire home-buying process becomes less stressful. If you are a first-time homebuyer, you might also be eligible to receive some benefits. 

If this sounds appealing, make sure to contact us at RealFi Funding Today 

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