Which Lender is Best For Home Mortgage?
There are many types of mortgages available for homeowners. So how do you know which one is right for you? Whether you’re shopping for a new home or simply wondering what mortgages are available, a loan officer can explain the kinds of mortgages available to help you make the right decision that works with your goals and budget.
Understanding Mortgages
Before you can choose a mortgage, you’ll need to understand what exactly a mortgage is. A mortgage is a home loan with two main parts: the principal and interest payment. The principal is the overall amount of the loan. The interest is a percentage of the principal that you pay to the lender for the loan duration. The principal and interest are both paid off monthly. Loan payments also include an annual percentage rate (APR), which includes other loan fees in addition to the principal and interest rate.
US Bank Home Mortgage Types
There are six kinds of mortgages available to homeowners. Depending on the mortgage you get, your down payment can range from as low as three percent to 20 percent, which is the standard amount for a conventional loan. Loans also vary in their qualification requirements and intended use.
- Conventional
- Conforming
- Non-conforming
- Federal Housing Administration (FHA)
- US Department of Agriculture (USDA)
- Veterans Affairs (VA)
Conventional loans are available to homeowners with good credit scores, normally at least 620 on the FICO scale. To get a conventional mortgage, you will also need to demonstrate employment stability and solid income history. You’ll also need to show that you make a down payment of at least three percent for your home. Remember that you may need to make a higher down payment of 20 percent to avoid paying for private mortgage insurance each month.
Conforming loans are loans that adhere to guidelines established by Fannie Mae and Freddie Mac. Conforming loans vary based on geography. Higher loan limits are available in certain areas of the United States, such as Boston and San Francisco.
Non-conforming loans are loans backed by private lenders. They cannot be purchased or sold by Fannie or Freddie. Non-conforming loans are considered a greater risk for lenders, which means that borrowers generally need a good credit score of at least 620, and they must make a down payment of 10 – 20 percent.
Federal Housing (FHA) loans are designed for homeowners who have less than optimal credit scores. Individuals whose credit scores are less than 620 may qualify for FHA home loans Las Vegas. For an FHA loan, you can generally make a low down payment of just 3.5 percent. You can be eligible for a loan with a credit score as low as 580, and even 500 in some cases. One caveat to keep in mind with FHA loans is that they are considered a higher-risk loan for lenders, requiring an upfront payment and an ongoing mortgage insurance premium, which is paid in monthly increments for the loan’s lifetime.
USDA loans are government-backed loans designed to help people purchase homes in rural areas. USDA loans are available to homeowners with lower income levels. USDA loans have minimal down payment requirements, and sometimes homeowners don’t need to make an upfront down payment at all. As with other loans designed for lower-income homeowners, USDA loans require monthly mortgage insurance payments to protect the lender from a default.
VA loans help military service members and veterans purchase homes. VA loans do not require a down payment. They do not require a monthly mortgage insurance payment, and they also avoid broker fees, which are often-overlooked fees that can add on quite a bit to your monthly loan payments. VA loans do, however, necessitate a funding fee payment to offset the cost of the loan for taxpayers. (Learn how to plan for your renovation here.)
Fixed-Rate and Adjustable-Rate Mortgages
Mortgages are divided into the two broader categories of fixed-rate and adjustable-rate, which is sometimes called a variable rate mortgage Las Vegas. Fixed-rate mortgages have a set interest rate for the loan’s duration, usually either 15 or 30 years. A loan with a shorter lifespan generally has higher monthly payments, but you also pay off the loan faster. Adjustable rate mortgages Las Vegas, in contrast, have interest rates that change throughout the loan’s lifetime. The interest rate for an adjustable rate mortgage Las Vegas will be fixed for anywhere from three to 10 years, but it can change after that. Fixed-rate mortgages are generally the preferred choice for first-time homeowners and those who want the stability and predictability of a longer-term home loan payment plan.
Before you buy a home, it is essential to learn how mortgages work and the available types. Contact us today to learn more about mortgages and understand the mortgages that are best for you.
