Utah's Mortgage Blog By The Mortgage Partner, Inc.

Posted on Sept 2, 2016 at 2:30 PM

September's Mortgage Post

3 Types of Mortgages for Homeowners to Consider

It’s time for you to get a mortgage—you’ve found the perfect home, gotten your pre-approval, checked your credit, and put in an offer. Before you sign your mortgage documents, though, you need to know what your options are.

It’s not as straightforward as just getting a mortgage, you need to know which kind is right for you. Choosing the wrong one could cost you a lot more in the long run, or cause you to get into a deal that doesn’t make sense for your financial situation.

Here are three mortgages you should consider if you’re ready to buy a home.

Conventional Mortgage

The conventional mortgage is probably the one you think about when you’re thinking about buying a home. It is a fixed-rate loan created for buyers who have excellent credit, employment, a down payment, and can meet other financial criteria such as a good debt-to-income ratio.

These loans are available in varying lengths of time, usually ranging from about 10 to 30 years, and they usually provide you with low interest rates in the long term. They generally come without extra fees that are sometimes assessed on FHA or VA loans, but if you don’t have 20 percent to put down, you will pay for private mortgage insurance (PMI) until you have at least 20 percent equity.

If your loan exceeds a predetermined amount to be considered a “jumbo” loan, you are often required to have 20 percent to put down.

FHA Mortgage

The Federal Housing Administration (FHA) offers special loans that are guaranteed by the government. They are not issued by the government (you still get them through a traditional mortgage lender), but because they are backed by the government, lenders are more flexible with the terms of the loans. That means you can get these loans with as little as 3.5 percent down payment.

The market’s lowest interest rates are not usually available for an FHA loan, and they do require PMI, but usually the rate for this insurance is lower than with conventional loans. Plus sellers can contribute up to 6 percent toward closing costs, and you can reduce the up-front costs by rolling fees into the loan.

Not all home loans are eligible for FHA loans, though, since there are upper limits to how much you can borrow for these loans--$417,000 for most areas and up to $729,750 in some higher-cost areas.

VA Mortgage

The VA mortgage is reserved for veterans and qualifying spouses of veterans. These loans, backed by the Veterans Administration, offer advantages like streamlined refinancing when interest rates hit new lows in the market, and the ability to roll closing costs and other fees into the loan so there are no costs to the buyer at the time you take out the loan.

Another advantage of this loan is that there are no restrictions on who can apply—no income limits—and typically you will not need a down payment or private mortgage insurance. They also have more lenient credit requirements, allowing borrowers with fewer cash reserves and less-than-perfect credit to achieve the dream of owning a home.

To find out more about these loans and figure out which, if any, might be right for you, contact The Mortgage Partner today.

Contact us here.