A fixed-rate mortgage is the most popular type of home loan. There are two big reasons for this: stability and predictability. Both the interest rate and monthly payment stay the same for the life of the loan, so you’ll never have to worry about an increase in payments.
Fixed-rate mortgages usually come in either 15- or 30-year terms.
A mortgage with a 30-year term is by far the most popular. You’ll have lower monthly payments with this option, but more total interest is paid over the life of the loan.
This is a good option if you plan to stay in the home for a long time to come, and it’s beneficial to lower-income families as they can get more house for a lower monthly payment. The lower monthly payment that comes with a 30-year loan also means borrowers have a better chance of qualifying for one.
As mentioned, you will pay much more in interest over time as compared to a 15-year loan. But all the pros of a 30-year loan outweigh this downside for many borrowers.
A 15-year term offers big benefits for homeowners who can comfortably afford the higher monthly payments that come with it. This shorter term should only be considered by those who have little concern about their income dropping during the life of the loan.
You’ll pay less interest over time with a 15-year term but have higher monthly payments—roughly 50% higher than that of a similar 30-year loan. But the savings from paying less interest are substantial: You could save tens of thousands of dollars if you pay off the loan in 15 years as scheduled.
Other benefits of a 15-year loan include building equity faster since you’ll be paying down the principal balance quicker, and, of course, owning your home outright in 15 years instead of 30.
There are other potential downsides to consider in addition to the higher monthly payments. For one, you’ll qualify for less home than you’d get if you stretched the same loan amount over 30 years at lower payments. And the extra money you’re putting toward high monthly payments could be invested in high-return investments instead.
Jumbo financing is anything over the Conventional loan limit: Conventional loan limits are set yearly, and anything above that amount would be considered a Jumbo loan. This can, however, vary in higher-priced counties.
Since Jumbo loans are larger loan amounts, they are a greater risk to the lender. Therefore, Jumbo guidelines are stricter than Conventional loans: They require a larger down payment, and stronger credit and reserves. Minute Mortgage has several options for well-qualified Jumbo loan buyers.
FHA loans can be a good—and maybe the only—option for first-time homebuyers who aren’t financially secure enough for a conventional mortgage. FHA loans are best for those who can’t afford a big down payment, have low credit scores, or have a higher debt-to-income (DTI) ratio. The requirements for all three of those factors are more lenient with FHA loans as compared to conventional loans.
FHA loans are issued by private lenders, but they’re guaranteed by the Federal Housing Administration, a government agency. FHA loan borrowers must pay a monthly mortgage insurance premium (MIP), too. It’s this coverage that protects lenders against losses if you default.
Though the lower bar to qualify for an FHA loan can be a lifesaver for potential first-time homebuyers, there are downsides to consider. As mentioned, the cost of mortgage insurance needs to be considered. Especially so with FHA loans, because you pay it for the whole life of the loan; it does not get removed once you have a 20% equity in your home.
Additionally, not all types of homes are eligible for purchase with an FHA loan. The houses must meet minimum standards for safety and structural integrity, and these loans can only be used for primary residences.
VA loans offer up to 100% financing on the value of a home for service members, veterans and eligible surviving spouses. The loans are provided by private lenders, but Veteran Affairs (VA) sets the qualifying standards, dictates the terms of the mortgages offered and guarantees a portion of the loan.
There are some outstanding benefits to be had for those who qualify for a VA loan. Most all qualified borrowers can get a VA loan with zero down payment on homes worth up to $453,100. And there’s a higher allowable dept-to-income (DTI) ratio; typically up to 41%. But even with no money down and a high DTI ratio, private mortgage insurance (PMI) is never required with a VA loan.
There are a couple regulations to consider with VA loans. Though PMI is not necessary with them, there is a mandatory VA funding fee. That cost can be financed into the loan, though. And VA loans are only intended for primary residences; they can not be used for second homes or investment properties.
Minute Mortgage has a team of experienced loan specialists ready to answer your questions and guide you to the mortgage that’s best for you.
Contact us today or go ahead and get started on your pre-approval application.
