The home buying process is incredibly complicated. Many buyers find choosing the correct type of mortgage to be a big challenge. With so many different types of mortgages with different requirements, it is no wonder that homebuyers feel a little overwhelmed when it comes to determining the best one for them. At First Fidelis LLC, we understand what each mortgage requires, and we help people find the perfect mortgage all of the time. Here are a few tips!
Do You Want Conventional or Government-Backed?
The first big aspect of a mortgage loan to consider is whether you want a loan that is government-backed or not. Conventional loans are guaranteed by private lenders, while the government guarantees government-backed loans.
Some of the most popular government-backed loans are the FHA, VA, and USDA loans. These loans have lower down payment options. Conventional loans are granted through private lenders and tend to require larger down payments.
- FHA: FHA loans are available to those who meet specific criteria from the Federal Housing Administration. A few qualifications include a 500 or better credit score, a debt-to-income ratio of less than 43 percent, two years of tax returns, and a property value within the mortgage limits.
- VA: VA mortgage loans are specifically for veterans. These loans have low payment requirements, no mortgage insurance, and up to 100 percent financing. Active duty military members also qualify for VA loans. Other requirements include living in a qualifying state and having at least a 620 FICO score.
- USDA: USDA loans are available for homebuyers that meet specific income eligibility requirements. These loans help those with lower incomes purchase quality homes. A few requirements for USDA loans include proof of dependable income, credit score of at least 581, and payments that are less than 29 percent of monthly income.
If you don’t have a lot of money for a down payment but have good credit and a stable income, government-backed loans are going to be the best bet for you. However, if you don’t put down a 20 percent down payment, you will have to pay for mortgage insurance.
A conventional loan is a great choice if you have enough money for a large down payment and can build your credit score while lowering your debt-to-income ratio. These loans will help you get rid of some of the extra fees and higher interest rates that government-backed loans are known for.
How Much Money Can You Borrow?
One of the most important things you need to know before buying a home is how much you can really afford. You don’t want to borrow an amount that will break the bank. It is important to remember that the amount of money that you borrow from a lender tells them a lot about your level of risk. For this reason, there are two different size categories of home loans.
Conforming home loans must meet the loan limit guidelines set by government-sponsored mortgage associations. These loans are designed for single-family homes. In most places in the continental U.S., the loan limit is $484,350. Conforming mortgage loans comes with lower interest rates and easier qualifications.
Non-conforming loans, including jumbo loans, were made for borrowers who need loans that exceed the limits of conforming home loans. These loans are riskier and require higher interest rates to help protect lenders. Non-conforming home loans typically require at least a 20 percent down payment and pristine credit. However, there are non-conforming loans that are made to cater to borrows with bad credit, lots of debt, or a recent bankruptcy.
What Type of Interest Rate Do You Want?
There are two different types of interest rates available on home loans: fixed and adjustable. Fixed-rate loans will always have the same interest rate. If you plan to live in your home for a long time, a fixed-rate loan over 15 or 30 years is probably the way to go. This way, you will always know what your monthly mortgage rate will be.
Adjustable-rate mortgages, also called ARMS, have interest rates that change at specific intervals. Usually, these loans start out with an interest rate that is lower than a fixed rate. These are called teaser rates. However, after the initial term ends, your interest rate may increase or decreased based on an index as well as a margin. Adjustable-rate home loans are better for young, more mobile homebuyers who don’t plan on staying in their homes long-term.
Choosing a Lender
Once you have decided on the proper mortgage, it is time to find the perfect lender. While many people brush off the importance of the right mortgage lender, at First Fidelis LLC, we know that working with a lender that doesn’t have the same values can be incredibly frustrating. Find a lender that will help you throughout the home buying process.
If you are in Kansas, Missouri, Arkansas, Mississippi, Florida, or Virginia, contact First Fidelis LLC today at 913-205-9978 for help.