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Which Home Loan Is Best For You?

Which Home Loan Is Best For You?

No two borrowers are exactly alike — that’s why home loans come in so many varieties. The trick is finding the right loan for you. Before you make a decision, you’ll want to sit with a mortgage professional and chat through your options. Here’s a quick rundown of the different types of home loans out there.

Fixed or Flexible

One of the biggest and more important choices today is between fixed rate loans and adjustable rate mortgages (ARMs). A fixed rate loan gives you a consistent monthly payment for the life of the loan. Your interest rate won’t change, so you’ll know exactly how much you’ll be paying in principal and interest each month until your loan is paid off. These loans are ideal if you plan to stay in your home for a long time. With ARMs, the initial interest rate is typically lower than that of a fixed rate loan. But it’s important to keep in mind that the interest rate and monthly payment for an ARM could change over the life of your loan.

Loan Types

There are several types of home loans, including:

  • Conventional loans
  • Government loans
  • Jumbo loans

A conventional loan is your standard home loan. It can be good for those with good credit and a reasonable down payment, and for those who can fully document all of their income and assets. Conventional loans typically require a minimum of 5 percent down, a minimum 15 to 30-year term, and are available with a fixed or adjustable rate. Jumbo loans kick in for those needing larger loan amounts that exceed conventional limits, and can go up to $2,000,000 (depending on your location). Government loans are sponsored or insured by government agencies, and include:

  • FHA loans
  • VA home loans
  • USDA mortgages

These types of loans are designed to make it easier for more people to buy homes. Some will finance up to 97 percent to 100 percent of the purchase price of your home, plus closing costs. Credit score and income documentation requirements are usually more relaxed. Keep in mind that these loans have more specific requirements.

Additional Customization Options

Many borrowers don’t realize that they may be able to customize their rate, payments, and features. For example, you may be able to pay discount points at closing to obtain a lower rate and payment for the life of your loan. That’s great if you plan to stay in your home for a long time, but if you need to minimize closing costs and just need a short-term loan, you may opt for no points and a slightly higher rate. You may also be able to structure your loan so there is no mortgage insurance.

Choosing the Right Loan

There are many home loan options to choose from when buying or refinancing a home. Know your goals and your limits to find the best option. For example, if you’re buying a $350,000 home with a 20 percent down payment and plan to make this your long-term family home, a 30-year fixed rate conventional loan could be your best fit. Whereas if you are refinancing a home that you plan to sell in the next five years, then an adjustable rate mortgage could be a smart move.

A professional loan officer can walk you through the options. He or she will take the time to get to know you and your objectives so that you can be confident in getting the best loan for you. To speak with a mortgage professional at Mr. Cooper, give us a call today.

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