Searching for your dream home? Curious about different types of home loans? Ready to apply for a loan? No matter where you are on your homeowner’s journey, our seasoned professionals are standing by to share tips and strategies for your success.
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A fixed-rate home loan is a loan with an interest rate that never changes. A popular term (length) for fixed-rate loans is 30 years, but many lenders offer other term options. Fixed-rate loans with shorter terms tend to require higher monthly payments, but less total interest paid over the life of the loan.
- You lock in the security of a consistent rate, which is ideal if you plan to stay in the same home for a long time. And if rates suddenly go up, you’ll keep the rate you had the day you closed on your loan.
- Fixed-rate loan types may have a higher rate and payment than the initial period of a loan with an adjustable rate.
With an adjustable-rate mortgage (ARM), your rate may change based on national rate indexes (within certain limits). Adjustable-rate home loans have an initial fixed rate period after which the rate will adjust at stated periods. For example, your mortgage might have a fixed rate for five years, and then adjust annually for the life of the loan. Each adjustment has periodic (such as annual) and life of loan adjustment limits.
- If you’re planning on staying in your home for a shorter period of time, the initial rate of a 3/1, 5/1 or 10/1 ARM can keep your monthly payments lower.
- If rates rise, your monthly payment could rise too. You could end up paying more each month than you did when you first obtained your loan.
A Conventional loan refers to a loan that meets the requirements of a Government Sponsored Entity (GSE) Fannie Mae or Freddie Mac. They typically require a minimum of 5% down and have both fixed or adjustable rate options. Popular conventional loan terms are 15 and 30 years.
- In some cases, Conventional loans tend to involve less paperwork than those insured by FHA or VA. If you can make a down payment of 20% or more, and meet the other eligibility requirements for a Conventional loan, you won’t have to carry mortgage insurance. Also, you may not be required to establish an escrow account for property taxes and insurance premiums.
- Conventional programs may also allow for down payments as low as 3% of the purchase price.
- If you can’t make a down payment of 20%, it’s likely you’ll have to pay mortgage insurance, and contribute every month to an escrow account your lender will use to pay your property taxes and homeowner’s insurance.
- For homebuyers who need larger loan amounts, High Balance and Super Conforming loan programs are available.
If you’re looking for a loan with flexible credit requirements and a more manageable down payment, an FHA Loan—backed by the Federal Housing Administration—may be just the ticket.
- Government-backed FHA Loans offer competitive rates, flexible credit requirements, and down payments as low as 3.5%. An FHA Loan may be a great option for people who do not qualify for a Conventional loan.
- Both up-front mortgage insurance and monthly mortgage insurance are required for FHA Loans, while they can be optional in other situations. You’ll also be required to have an escrow account to stay on top of your property taxes and insurance payments.
FHA Streamline Loan
FHA Streamline Refinance Loans are a unique refinancing option for borrowers who already have an FHA loan.
- Compared to many other loan types, the process of applying for an FHA Streamline Refinance is quicker and document requirements are simpler, although there are times when a streamline refinance may require an appraisal and/or full income and asset and credit qualification. This requirement will increase fees and required paperwork. And even if your equity is currently negative, certain types of FHA Streamline loans could still lower your payment.
- Like any refinancing, there are fees involved. Also, an FHA Streamline Refinance may extend the term of your loan. The fees can offset any savings for a while, and a longer term could mean higher lifetime interest costs.
If you are a veteran, active duty service member, or surviving spouse of a veteran, you may be eligible for a well-deserved benefit: A VA Loan.
- Compared to many other loan types, VA Loans may offer low rates and manageable down payments (that can actually be as low as $0 for qualifying borrowers!) They also don’t require monthly mortgage insurance payments.
- New VA Loans are only for primary residences. The amount you can borrow may be limited by your VA entitlement amount. VA Loans also require an up-front funding fee, unless you have a military service-related disability.
Jumbo loans are non-conforming mortgages that exceed traditional loan limits required by Fannie Mae or Freddie Mac.
- Includes mortgages greater than they typical conforming loan limit amounts.
- Allows you to borrow up to $2.5 million depending on property type and other factors.
- Available on a 15 or 30 year fixed or adjustable-rate mortgage.
(Interest Rate Reduction Refinance Loan)
If you have a VA Loan, an IRRRL is a great way to lower your monthly payment. However, you can only use it to refinance to a VA Loan from a VA Loan.
- No credit underwriting package is required by the VA when applying, and you may not need to pay any money out of pocket or get a property appraisal. There are times when an IRRRL may require an appraisal and/or full income and asset and credit qualification. This requirement will increase fees and required paperwork.
- A funding fee is required unless you are eligible for a funding fee exception, though it can be financed into the loan.