How to find the perfect loan for you
In fairy tales, you often have to kiss a lot of frogs before you can find your prince (or princess). Thankfully when it comes to an ideal loan, it’s not that hard. While finding the perfect mortgage can sometimes feel like some epic quest, we can help you find a loan that’s perfectly matched to you and your unique needs. Read on to learn more about the various suitors out there, so that you can find your perfect loan match.
Conventional mortgage: The dependable type
Conventional loans are consistently the most popular option for homebuyers, and in 2018 accounted for 75% of all mortgages. A conventional, fixed rate mortgage offers terms that never change, which means you have the same monthly payment throughout the life of the loan.
To qualify, most lenders will want to see a credit score of 620 or higher and a debt-to-income (DTI) ratio of 43% or less. In return, you may have access to some of the lower interest rates lenders have to offer. While 30-year is the most common length (or term) for conventional mortgages, they are also available in 15- and 20-year terms. Different terms will also feature different rates, with the general rule being that rates for a shorter-term loan are lower than for longer-term loans. However, monthly payments for shorter-term loans are higher than for long-term loans (…but you end up paying less in interest over the life of the loan). Woof, everybody follow that?
FHA home loan: The young professional
Insured by the Federal Housing Administration and administered by specially approved lenders, FHA loans are typically easier to qualify for than conventional mortgages. That makes them a great match for first-time homebuyers who may be just out of college and starting careers and/or families.
Lenders usually look for a credit score of 580 or higher and a DTI ratio of 50% or less, with low down payment options. For those with credit scores of 620 and above, the down payment options for an FHA loan start at 3.5%., while credit scores below 620 require down payment options to start at 10%. And FHA loans do require the borrower to pay MIP (Mortgage Insurance Premiums) annually over the course of the loan, which can inflate your monthly payment.
Jumbo loan: The glitz and glamour type
Jumbo loans are for homebuyers looking to live large and are ideal for those who need a loan that exceeds the conventional conforming loan limits in their area. Jumbo loans can let you purchase a lot of real estate, but because of higher loan amounts involved they also require more stringent credit guidelines and a larger down payment. Also, it may be more expensive to refinance a jumbo loan due to higher closing costs.
VA home loan: A hero in uniform
Available to active or retired members of the U.S. military and certain qualifying relatives, VA loans offer some of the same benefits as FHA home loans, such as more lenient credit requirements and looser rules surrounding DTI.
They also offer an additional, and huge, benefit: no down payment is required. While VA borrowers can opt to pay a down payment, about 90% of VA home loans customers put down no money at all when they take out their loans.
USDA home loan: The open range-r
Like FHA and VA home loan programs, USDA loans aim to help make homeownership more affordable for more Americans. Guaranteed by the United States Department of Agriculture, USDA loans are for homes located in one of the USDA’s qualifying rural areas and have income limits—generally your household income can be no higher than 115% of the median income for the area.
ARM loan: The keep-your-options-open type
ARMs are a unique type of home loan, in that they feature an interest rate that changes after a fixed amount of time. ARMs typically offer lower initial interest rates than fixed mortgages and extra protection with rate caps, which can make them a great homebuying option when there’s likely to be rate variability. (Rate caps control the ways your interest rate can adjust at different stages of the loan). However, after an ARM’s initial time period is up, the rate of the loan will fluctuate based on the market and can go up.
Now that you’ve met all the suitors, the best way to get better acquainted and find your true love is to speak with one of our experienced loan officers. They can help match you with a loan perfectly suited to your unique needs—which puts you one step closer to a happy ending to homebuying story.
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