The type of mortgage loan that’s right for you depends on several factors, including your unique financial situation and the type of property you’re purchasing.
Here is a quick rundown of the most popular mortgage loan types to help you decide which is the best fit for you.
Conventional Loans
Conventional loans are the industry standard and are the best option for a wide range of buyers.
As long as you have good credit (around a 620 credit score for most lenders), and you’re not looking for an excessive amount of money, you likely qualify for a conventional loan that offers:
Down payments as low as 3% of the purchase price.
Flexible loan terms.
Minimum property requirements (you can finance your primary residence, second home, or investment property, located in any residential area).
FHA Loans
FHA loans were designed for first-time homebuyers and are backed by the U.S. Department of Housing and Urban Development (HUD). If you don’t meet the income or credit requirements for a conventional loan, an FHA loan might be a better fit to help you buy a primary residence.
FHA loans offer:
Lenient income and credit requirements (you can qualify with a credit score as low as 500).
Down payments as low as 3.5%.
Down payment assistance programs for qualifying borrowers.
VA Loans
VA loans are backed by the Department of Veteran Affairs, specifically to help active military members, veterans, and their families own their homes.
If you qualify for a VA loan, you can take advantage of benefits like:
$0 down payment (plus no private mortgage insurance),
Very low interest rates,
Lenient credit requirements,
And the possibility of buying a property with up to four units (as long as one of them is your primary residence).
USDA Loans
USDA loans are backed by the United States Department of Agriculture to help buyers of low-to-moderate income purchase properties in rural areas. To qualify for a USDA loan, the home must be located in a qualifying rural area, so your options are limited. But if you find a qualifying property, and you qualify based on the income limits, you can take advantage of:
$0 down payment,
Below-market interest rates,
And no loan limits (unlike FHA loans, which are capped at specific amounts).
Fixed-Rate or Adjustable-Rate?
Any of these loan types can be taken with a fixed interest rate or an adjustable interest rate.
Fixed-rate loans are best when interest rates are low; this allows you to lock in the low rate for the entire term of the loan.
With an adjustable-rate mortgage (ARM), on the other hand, your interest rate will change over time as the going market rate changes. Adjustable-rate loans are a better option when interest rates are high and are expected to come down in the future.
When you have questions about the complexities of buying a home (like how to choose a mortgage loan or mortgage lender), the team of experienced real estate professionals at Sequoia Real Estate is happy to assist you. We offer free, no-obligation consultations to answer your questions. And because real estate agent fees are paid by the seller, it costs you nothing to hire professional representation in your home purchase. Contact us today to get all your questions answered!