Choosing Your Home Loan
When obtaining a home loan, there are five different loan programs and two types of loans you can choose from. Each has different features, benefits, and considerations. As Mortgage Advisors, our knowledge of each allows us to help you select the best home loan strategy to meet your goals.
Programs
Conventional Features
Conventional
Features
- Available in a variety of fixed-rate and adjustable-rate loan options.
- Has down payment options as low as 3-5%
- Lets you add extra features such as a temporary buy down.
- You typically have to pay mortgage insurance if your first loan has less than 20% equity.
Benefits
- Mortgage insurance has the ability to drop off when you have 20% equity.
- Allows a co-applicant to help you qualify even if the person doesn’t live in the home.
Considerations
- A Conventional loan has the benefit of a low down payment but there are other loan products with the same option.
- Be certain to ask your Mortgage Advisor to help you compare the overall costs of all products, including the monthly and long-term costs and conditions of the required mortgage insurance.
- In many instances, you may find a Conventional loan to be a less expensive financing option and should be considered after thoroughly evaluating all other product options that meet your credit qualifying and financial needs.
FHA Features
FHA
Features
- Available in a variety of fixed-rate and adjustable-rate loan options.
- Has down payment options as low as 3.5%.
- May allow you to use a gift or grant for all or a portion of the down payment or closing costs.
- Lets you add extra features such as a temporary buy down.
- You have to pay upfront and monthly FHA mortgage insurance premiums.
Benefits
- Available for all income levels.
- Allows a new buyer to take over your loan when you sell your home (subject to loan approval).
- Allows a co-applicant to help you qualify even if the person doesn’t live in the home.
Considerations
- An FHA loan has the benefit of a low down payment but there are other loan products with the same option.
- Be certain to ask your Mortgage Advisor to help you compare the overall costs of all products, including the monthly and long-term costs and conditions of the required mortgage insurance.
- In most situations, you can only have one FHA mortgage at a time.
- In many instances, you may find an FHA loan to be a more expensive financing option and should be considered after thoroughly evaluating all other product options that meet your credit qualifying and financial needs.
- Unless the loan starts with 10% down payment/equity, mortgage insurance is required for the life of the loan.
- You can get financing for your primary residence only, in most situations.
VA Features
VA
Features
- Provides financing for qualified veterans, reservists, active duty personnel, or eligible family members.
- Available in a variety of fixed-rate and adjustable-rate loan options.
- Allows closing costs to come from a gift or grant.
- Has low-and-no-down payment options
- Lets you add extra features such as a temporary buy down.
Benefits
- Provides a wide range of rate, term, and cost options.
- Doesn’t require monthly mortgage insurance.
- Provides the potential for minimal out-of-pocket expenses with seller contributions.
- Allows a new buyer to take over your loan when you sell your home (subject to loan approval).
Considerations
- With a VA loan, you typically have to pay a one-time VA funding fee that can be financed into the loan amount.
- You can get financing for your primary residence only, in most situations.
Jumbo Features
Jumbo Loans
Features
- A “non-conforming” loan with mortgage amounts above the maximum conforming loan limits.
- Available in a variety of fixed-rate and adjustable-rate loan options.
- You may be able to add extra mortgage features, such as a temporary buy down.
Benefits
- Obtain financing for loan amounts higher than the Fannie Mae and Freddie Mac conforming limits.
- Get the convenience of one loan for the entire loan amount.
- Choose from a variety of loan options.
Considerations
- You build equity at a slower pace because payments during the first several years go largely toward interest rather than the principal balance.
- Interest rates tend to be higher than conforming loans.
- Typically require more down payment.
Types
Fixed Rate Mortgage
Fixed Rate Mortgage
Features
- Your interest rate and monthly principal and interest (P&I) payments remain the same for the life of your loan.
- Available in a variety of loan term options.
- You may be able to add extra features such as a temporary buy down.
Benefits
- Predictable monthly P&I payments allow you to budget more easily.
- Protection from rising interest rates for the life of the loan, no matter how high interest rates go.
- May be a good choice if you plan to stay in your home for a long time.
Considerations
- The overall interest you pay is higher on a longer-term loan than on a shorter-term loan.
- On a shorter-term loan, the monthly P&I payment is higher than on a longer-term loan.
Adjustable Rate Mortgage
Adjustable Rate Mortgage
Features
- Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 5 or 7 years, then adjust annually.
- Loans available in a variety of longer terms.
- Includes an interest rate cap that sets a limit on how high your interest rate can go.
Benefits
- Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage.
- The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan.
- May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years.
Considerations
- Monthly principal and interest payments may increase when the interest rate adjusts.
- Your monthly principal and interest payments may change every year or sooner after the initial fixed period is over.