If you’re ready to buy a new home, congratulations! It’s an exciting process, and there are few ways to help smooth the path forward. Partnering with an experienced real estate agent and ensuring your credit history and financials are up to speed are important first steps, and so is securing a loan approval letter. It’s also wise to begin investigating your loan options. There are lots of mortgages out there, and deciding which one suits your needs isn’t always easy. To help, the Cushing Team of Guild Mortgage here in Reno is sharing information on six kinds of mortgages, with tips for finding what’s best for you.
The fixed-rate loan is a conventional loan that describes itself well — it has a fixed interest rate and monthly payment for the life of the loan, which is usually 15 or 30 years. A down payment is typically required, and the terms of your loan will not be affected by fluctuating interest rates. Both FHA and jumbo loans are different kinds of fixed-rate loans. This kind of loan is often well suited to people who plan to stay in their home over the long-term.
An adjustable-rate mortgage, or ARM, has the advantage of lower interest rates than what you’ll likely see with a fixed-rate mortgage. But that low rate will be adjusted after a set period, usually five or ten years, and it will change, along with your monthly payment, to reflect current interest rates. That means skyrocketing interest rates can meet higher monthly payments, but the reverse is also true — if interest rates drop, so does your house payment.
Prospective homeowners with higher credit scores may be good candidates for this kind of loan. An ARM can also work well if you plan to sell before the fixed-rate period ends.
The bridge loan is a unique loan that’s also known as a gap loan or repeat financing. If you plan to buy a new home before you sell your current residence, a bridge loan can help in the interim. Once you sell your old home, you pay off the bridge loan and refinance. To quality, you’ll need excellent credit and a low debt-to-income ratio. You’ll also need to be in a financial position that doesn’t require you to finance more than 80% of the combined value of both homes. If you can meet those requirements, a bridge loan can be the key you need to transition seamlessly from one home to the next.
The USDA Rural Development loan is sponsored by the USDA and designed for families buying in rural areas. There is no down payment necessary on USDA-eligible homes, and there are often discounted interest rates as well. This loan is designed for prospective homeowners who may not otherwise qualify for home ownership. Debt cannot exceed income by more than 41%, and separate mortgage insurance is required.
As a government-backed loan, a Federal Housing Administration (FHA) loan needs a much lower down payment than standard conventional loans — as little as 3.5%. If you’re low on savings, this can be the key to homeownership. There are stipulations and requirements, however, including limits on amounts borrowed and rules about private mortgage insurance.
The Veterans Affairs or VA loan is an alternative to conventional loans for anyone who has served in the United States military. With no down payment and no requirements for mortgage insurance, this kind of government-backed loan can be ideal for the right candidate. However, the VA has specific rules regarding the kinds of homes that can be purchased.
Making the Call
Understanding the definitions is one thing, but deciding which mortgage is right for you can be another. The Cushing Team is happy to answer any questions you may have about different loan options. Contact us today, and let us offer you recommendations and suggestions that will help you quickly zero in on the right home loan for you.