Types of Mortgage Loans
Hundreds of types of mortgage loans are available for types of borrowing needs. So what type of mortgage loan is the best for a first time home buyer? The best loan type is the loan that fits the best with the home buyers needs.
To begin with, the first time home buyer will have to determine how much money they have for a down payment. The down payment will narrow down the choices since a home buyer with a small down payment may be more apt to look at government insured loan options i.e.- FHA loan, VA loan, USDA loan. A home buyer with a larger down payment would be more inclined to research conventional loans to take advantage of no private mortgage insurance (PMI) options.
Loan terms should also be considered. Most loans are amortized for 30 years, but some home buyers may opt for an accelerated payoff of say 15 or 20 years. Typically, a shorter loan duration means a slightly lower interest rate. A fixed rate loan is the most common type of loan and the interest rate as well as the mortgage payment is fixed for the duration of the loan.
If a home buyer anticipates a stay in the new home of only one to six or seven years, they may opt for an Adjustable Rate Mortgage (ARM). With an ARM loan, the rate is fixed for a set amount of time most typically 3, 5, or 7 years. These types of loans will typically have a lower initial monthly payment an may allow the home buyer to qualify for a higher loan amount. ARM loans do have a risk though. The payment will adjust at a point in time and the monthly payment will increase if mortgage rates go up. Ideally, these loans work if the rate and payment is fixed for the amount of time the home buyer intends to stay in the house.
Self employed home buyers may have a difficult time proving monthly income so they may need some sort of stated loan program or a reduced documentation program. Typically with a great perceived risk i.e.- less documentation, there is also a higher interest rate.
First time home buyer programs are available and may offer loans that require a smaller down payment, but the loan may also have associated with it income restrictions and property value limitations.
All loans will have credit requirements associated with them as well. Typically the higher the loan risk or the more attractive the interest rate, the higher the credit requirement.
Before seeking loan assistance, a first time home buyer is advised to sit down and evaluate personal finances. The first step is to determine down payment, and the next is to get an idea of their own credit score. Once they have some information about their situation, they should be ready to contact a loan counselor for additional assistance.
Please complete the form below for a quick pre-approval for your home purchase loan. A loan officer will review your information and contact you regarding the programs you appear to qualify. If you have already found a property, please note that in the comments section and your inquiry will be expedited.
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