Got an Interest in Mortgage Options? What Home Loan Financing Means for You!

How many prospective home buyers do you know who are planning to pay cash for the full price of their new home? A common fact in home buying is that pretty much everyone finances a portion of their purchase. But, not all financing options are the same. In fact, when it comes to mortgages, there are many options for today’s buyers.

So, if you’re in the market for a new home and you’re not ready to pay that sticker price in cash, it’s time to get familiar with today’s lending options. Here’s a look at the way today’s mortgages work; because, simply… no mortgage is quite the same:

The first aspect of a mortgage to consider is the loan length. Again, unless you’re planning to pay a one-time fee up front for your home, you’ve got options as to how long you’ll be financing your new place. Many home buyers opt for a traditional 30-year mortgage; but, some buyers choose a 15-year loan or another payback time-frame that a lender may offer. Length of a home loan also can affect the interest rate of the loan, which leads us to our next point…

Once you understand that loan terms vary, it’s time to look at the interest rates that are associated with those terms. There are fixed rate loans and adjustable rate loans; and, they pretty much mean just what they say. With a fixed rate mortgage, buyers enjoy the same interest rate for the entire term of their loan. With this type of mortgage, monthly payments always stay the same, so home buyers know what their payment will be from the get-go.

An adjustable rate mortgage or (ARM) usually can offer home buyers a lower interest rate to start off their loan. However, that low rate changes periodically throughout the length of the loan. Up front, there is typically a fixed period where the interest rate is low; after that fixed period, the loan rate fluctuates at an uncertain rate throughout the duration of the loan.

So, you’ve got loan length and you’ve got interest rate to consider. Now, you’ve got another type of mortgage to consider. There are conventional loans, which are offered by banks and lending institutions; there are government-backed loans, which are offered through the federal government; and, there are jumbo loans, which are another ball-game entirely.

Let’s start with conventional loans. These loans require home buyers to put down a percentage of their home price. Traditionally, that percentage is 20%, but today’s home buyers have options here, too. The best bet for buyers is to talk with several lenders to see what they offer.

Next, let’s consider the three big types of government-backed loans: FHA, VA and USDA. All three mortgage options are issued by the federal government, which means the government insures the lender against losses if the buyer defaults on the loan.

An FHA loan is offered by the Federal Housing Authority and lets buyers put as little as 3.5% of their home price down. The con here is that buyers pay private mortgage insurance until they reach 20% of the purchase price, which dissolves that cost. So, the down payment is low, but the up-front payments are higher, until that 20% is reached.

A VA loan or Veterans Affairs loan is exclusively reserved for military service members and their families. In some cases, borrowers receive 100% financing and have no down payment or private mortgage insurance at all.

The final government-backed loan option is a USDA loan. These loans are reserved for rural residents with modest incomes who cannot get conventional loans. Eligibility is determined by location and the median income for an area.

While all of these loans conform to traditional borrowing standards, there is another type of loan that breaks all of the conventional rules. A jumbo loan is a higher-risk loan, which is based solely on the amount being borrowed. If a loan qualifies as a jumbo loan, there is a greater risk for lenders. That risk is translated to buyers because the loan qualifications are a bit more stringent for borrowers. Buyers must have excellent credit to qualify for a jumbo loan; they usually have to put more down up front; and, they usually pay a higher interest rate.  

So, what’s the verdict on the many types of loans offered to today’s home buyers? Do your homework! Shop around for the best loan that you qualify for and don’t forget to consider loan length, interest rate and the other factors that may affect the loan that is best for you.

This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.