West LA & Westwood Real Estate Market
TYPES OF MORTGAGE LOANS FOR HOME BUYERS
Applying for a home loan can be complicated, and choosing which type of mortgage best suits your needs can help you decide the kind of home you can afford. There are several loans to choose from when buying a house, so it is crucial to understand the pros and cons of each type before deciding. Finding the right mortgage that perfectly fits your financial situation can lower your down payment and decrease the amount in interest paid over the life of the loan. Here are the type of mortgage loans available to you;
Conventional Mortgages
Conventional mortgages are the most common type and have stricter regulations on your credit score and debt-to-income ratio. The Federal Government does not guarantee conventional loans through entities like the Federal Housing Administration (FHA) or the U.S. Department of Veteran Affairs (VA). Although you can put as little as 3% down on a conventional mortgage, you will also need a minimum credit score of 620 to qualify. Buyers with a stable income, people who can pay at least 3% down, and have strong credit are all good fits for this kind of loan.
There are a few types of mortgage loans that fall under conventional loans. Here we will talk about the most common;
1. Fixed-Rate Mortgages
This mortgage has the same interest rate and principal/interest payment throughout the life of the loan. The fixed-rate mortgage offers a very predictable monthly cost. A fixed-rate mortgage will be a good choice if you plan on living in your forever home. The consistent monthly payments allow you to budget and plan for the long term. You may want to avoid this mortgage if current rates are high in your area. Fixed-rate mortgages are perfect for buyers purchasing or refinancing their forever home.
2. Adjustable-Rate Mortgages
The adjustable-rate mortgages (ARM) are the opposite of fixed-rate mortgages. An (ARM) is a 30-year loan with interest rates that change depending on how market rates move. You enter the loan on an introductory fixed-interest period, typically over the first 5, 7, or 10 years. Your interest rate is usually lower than 30-year fixed rates during this period. After this period ends, your interest rate changes depending on market interest rates, so you will either be paying more or less depending on the market interest rate. There are also rate caps that protect you from rapidly rising interest rates. ARMs can be a good choice if you plan to buy a starter home before moving into a forever home. These can also be beneficial if you plan on paying extra toward your loan early on, saving you thousands of dollars.
3. Jumbo Loans
Jumbo loans are conventional loans that don’t stick to government guidelines issued by Fannie Mae or Freddie Mac. Jumbo loans usually exceed maximum loan limits. There is a higher level of risk to lenders with these loans, which means there is a higher bar to qualify, but it does not always mean higher rates. Borrowers who need access to a loan more significant than the county limit are an excellent match for this loan.
Which Type of Mortgage Loan Is Best for Me
The most crucial part of finding the right loan is speaking with a lender. Finding the perfect loan for your financial situation is a significant step in home-buying. Securing a loan should be done before you even start looking at homes. If you’re preapproved, you will better understand the properties and locations you should be looking to buy.
You’re about to embark on an exciting journey, but you need the right tools for success. The Shilian Group has an extensive network of qualified lenders who can help you in your house-hunting adventure! Please contact us at (310) 299-7655 today.
