5 Types of Mortgage Loans for Homebuyers in 2020
Purchasing a home is one of the biggest decisions that someone will make in their lifetime. When you do purchase a home, you will be providing yourself with a stable place to live and be able to take advantage of the long-term financial benefits.
Along with choosing the right home to buy, another important factor that needs to be considered is the mortgage you choose. Today, there are five popular mortgage options that all people should take into consideration. It is important to evaluate the features of each mortgage loan when determining which option is right for you.
Conventional Mortgage Loan
One of the best mortgage loans for homebuyers to consider when purchasing a home is a conventional mortgage loan. Ultimately, a conventional mortgage loan is a type of mortgage that complies with the basic mortgage standards and requirements that have been set by Fannie Mae and Freddie Mac. If you get a conventional mortgage loan, it can be used to purchase a primary residence, secondary home, or even an investment property.
Conventional mortgage loans tend to have the lowest rates available. However, there are some standards that need to be met in order to qualify. This includes having an acceptable income to support your housing payments, a credit score of a certain level, and a certain amount of equity in your home. If your credit score and income are not ideal, you may have to pay a higher interest rate. Those with less than 20% equity may be required to pay for private mortgage insurance until they do reach that equity threshold.
Depending on your situation, you may qualify for a government-backed mortgage. The three most popular government mortgage programs are the FHA loan program, the VA loan program, and the USDA loan program. The FHA program is designed for individuals that are first-time homebuyers. With this program, you can have a down payment as low as 3.5% and do not need a high credit score. However, interest rates tend to be lower with lower down payments and credit scores.
The VA home loan program is designed for individuals that are either veterans of the military or active members. With these loans, you do not need to have a down payment and are not required to pay private mortgage insurance. This makes it much easier for veterans and military members to qualify for a loan.
The USDA home loan program is designed to provide mortgages to people that are purchasing homes in rural markets. You could qualify for a mortgage with no down payment if you meet the necessary income criteria.
Another one of the best mortgage loans for homebuyers to consider is a jumbo mortgage. A jumbo mortgage is a mortgage loan that is larger than the conventional limits. For most people in 2020, mortgages above $510,400 are considered jumbo mortgages. This limit tends to increase annually and is higher in more expensive markets. With a jumbo mortgage, you will be able to purchase a more expensive home. However, the underwriting standards tend to be tougher and you will have to pay a higher interest rate.
A fixed-rate mortgage is the most popular option for many buyers. With a fixed-rate loan, you will have the same interest rate and monthly payment for the entire term of the loan. Most buyers will choose mortgages with fixed interest terms that range from 15 to 30 years. Normally, the shorter the amortization, the lower the interest rate will be. However, the monthly payments will be higher.
While fixed-rate mortgages provide some assurances, there are situations when you will want an adjustable-rate mortgage (ARM). With an ARM, you will receive a loan that will have a fixed interest rate for a period of time, which typically ranges from three to ten years. Once that period is up, your interest rate will fluctuate based on current mortgage rates in the market. The initial interest you pay with a mortgage will be lower than with a fixed rate, but you are taking on a risk that the rate could increase dramatically in future years.
Picking the right mortgage is an important part of the home buying process. If you are looking to buy or sell a home in the Lakeland, FL area, you should reach out to our team at MEGG Homes. We can get you in front of the right people to help you to evaluate all of your financing options while also helping you to find the home of your dreams. If you are looking to sell, we can also help by purchasing your home as-is. We buy homes all throughout Polk County. Request an offer on your property online here.