Which Mortgage Program Is Best For You?
There are many types of mortgages. It is to your advantage to know about each mortgage kind before you start searching for your next home. Most people apply for a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the loan, which can range from 10 to 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it, although your character taxes and home owner’s insurance may change during the repayment term of your mortgage. Another kind of mortgage is an adjustable rate mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index.
The advantage of an ARM is that you may be able to provide a more expensive home because your initial interest rate will be lower. There are several government mortgage programs, including the Veteran’s Administration’s programs, the Department of Agriculture’s programs, Federal Housing Administration mortgages, and traditional loans. Thoroughly discuss your financial situation with your real estate broker about the various loan options, before you begin shopping for a mortgage.
Below is a fleeting description of the 4 main mortgage types. The Federal Housing Administration (FHA), Veterans Administration (VA), United States Department of Agriculture (USDA), and Fannie Mae/Freddie Mac (traditional financing) all have different guidelines and down payment requirements. Fannie Mae and Freddie Mac are the most recent sudo-government agencies to set afloat minimal down payment programs. There are also various down payment assistance programs obtainable to first time home buyers, recent graduates, and low-income households. Most down payment assistance programs have income and sales price limitations and repayment requirements.
• traditional Financing – traditional mortgage loans require a minimum 3% down payment. Private mortgage insurance (PMI) is required unless there is a 20% down payment or lender paid PMI is offered by the mortgage company. Mortgages are offered for owner occupants and investors.
• FHA Financing – This financing kind requires a minimum of 3.50% down. FHA allows approved nonprofit organizations and/or family members to assist homebuyers with the down payment requirement. Upfront and monthly mortgage insurance is required. Only owner occupied financing is offered.
• Veterans Administration – Honorably discharged veterans or active-duty personnel in the US military who meet stated qualifications are eligible for no down payment mortgage financing. VA Mortgages requires an upfront funding fee unless the veteran is disabled. VA mortgages require no monthly mortgage insurance, but are obtainable to owner occupants only.
• USDA Financing – This mortgage program is obtainable by the United States Department of Agriculture. This loan kind allows zero down financing for owner-occupied similarities in designated rural areas. Income and sales price limitations apply. An upfront and monthly fee is required. There are two definite loan types, which include guaranteed and direct loans.
Each of these loan types offer different features and should be fully investigated to determine which loan kind fits your credit and financial situation. It is always in your best interest to be pre-approved prior to looking for a new home.