When it comes time to buy a house, figuring out the financing can be a confusing and overwhelming part of the process. But don’t worry, Steph the Mortgage Genie, your mortgage broker in Omaha, NE is here to assist you with all your mortgage questions.
There are several popular mortgage options a majority of home buyers can choose from. Once you have determined your credit rating, how much down payment you can afford, and your house budget, you can easily narrow down which type of mortgage will work best for you. Let’s review five common types of mortgage options.
A conventional loan is a mortgage that is not insured by the government. This type of loan offers the best interest rates, generally requires 10% down payment and lenders typically require a good credit rating to qualify. Most lenders require home buyers who put less than 20% down payment on the house to purchase private mortgage insurance (PMI). The requirement for PMI drops off once they have reached 20% equity. This type of loan generally offers lower borrowing costs than other types of mortgages. For questions regarding the requirements of conventional loans, contact your mortgage brokers in Omaha.
Fixed-rate mortgages are traditional mortgages that have the same interest rate over the life of the loan, i.e., 10, 15, 20, or 30 years. The most common option is the 30-year fixed-rate. Home buyers like these types of mortgage loans in Omaha because it provides stability that the monthly mortgage payment will remain the same for the length of the loan. Fixed-rate mortgages also offer even lower interest rates for shorter loan periods.
On the flip side is the adjustable-rate mortgage (ARM). Borrowers can get lower interest rates with an ARM than with a fixed-rate mortgage, however, the interest rate can and will fluctuate. There are set minimum and maximum rate caps to protect the borrower from huge fluctuations in monthly payments and it is typically a few years before interest rates reset to a variable rate. This type of mortgage may appeal to home buyers who do not plan to live in the home for an extended period of time, and therefore can take the risk in order to get the benefits of lower interest rates. Another option for this home buyer is to refinance the home before the interest rate changes.
Some home buyers qualify and opt for a government-backed loan. One type is called an FHA loan. These mortgages are insured by the Federal Housing Administration. They are specifically designed for borrowers that only have a small down payment or low credit scores. These mortgages are appealing to first time home buyers for these reasons. Home buyers can qualify for this type of loan with 3.5% down payment and a credit score of 580 or higher. Alternatively, a credit score as low as 500 can qualify with 10% minimum down payment.
There is a catch. This loan is more high risk, and therefore more fees are attached. The borrower will be required to pay a mortgage insurance premium (MIP) upfront, as well as continue to pay mortgage insurance premiums monthly. These fees are to be paid until the mortgage is paid off or it is refinanced into a non-FHA loan. For these reasons, it is better to choose a conventional loan if you can qualify.
Another type of government-backed loan is a VA loan. Qualifying veterans, active military and military families are wise to choose this type of loan because it doesn’t require any down payment nor does it require mortgage insurance. There are relatively few fees associated with this loan and closing costs are capped and can be paid by the seller or rolled into the loan. Ask your mortgage lender in Omaha if you or your family member qualifies for a VA loan.
If you have unanswered questions regarding mortgages and aren’t sure what the next steps are, contact Steph the Mortgage Genie today.