What are the different home loan options?

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What are the different home loan options? A blog article by Discom Realty

What are the different Home Loan Options? – Discom Realty Explains What You Need To Know!

Did you know that are numerous home loan options available for you? It is true. This blog article will explain the different loans available and hopefully, this article can help you figure out which one is the best for your situation. 

What are the different Home Loan Options?

CONVENTIONAL LOANS – What are the different Home Loan Options?

If you are looking for a mortgage with a wide selection of terms and competitive rates, conventional loans may be a good way to go. A conventional home loan is what most people think of when it comes to a traditional home loan.

Did you know, that a Conventional Home Loan is not part of a government-sponsored program? That is the truth. Why that is, actually comes from the fact that these loans are fully funded and insured by private lenders and insurers.

What are the requirements for a basic conventional loan?

Honestly, the final decision is with the lender(s). So, therefore, the lenders individually decide who is and is not approved for a conventional loan. A potential home buyer or the individual needing to borrow the money to purchase the home should be prepared with:

  • at least two years of W-2’s,
  • tax statements,
  • bank statements,
  • and proof of cash reserves
  • plus they will be required to submit to take a credit report.

A preferred home buyer wanting to get a conventional mortgage loan should have a good or better than average credit score. This credit score should be at least 620 or higher. Plus the ideal home buyer for this loan should also have a low debt to income ratio. For most conventional loans, a 20% down payment is required.

FHA LOANS – What are the different Home Loan Options?

Did you know that FHA loans are an awesome option when it comes to home financing? Well, that is the case. An FHA Loan has great benefits, such as a minimum of only 3.5% down payment. These non-conventional loans are secured by the Federal Housing Administration and are funded by private lenders.

FHA loans are a much more accessible financing option with lessened requirements and added benefits such as:

550+ Credit Score & 3.5% Down Payment versus having to come up with 20% down payment for a conventional loan at the closing table. Further, you can get fixed interest rates for your mortgage over the life of the loan. Having the ability to have some or all closing costs covered by the seller or the lender can help you if that is possible. 

Also, if you would like to make repairs to your existing home, FHA also offers 203(k) mortgages for home repair. Which is really to know about.

Adjustable Rate Mortgages (ARM) – What are the different Home Loan Options?

Adjustable-rate mortgages include interest payments that change during the loan’s term, depending on current market conditions. Typically, these loans carry a fixed interest rate for a set period of time before adjusting.

The initial rate on an ARM is lower than on a fixed-rate mortgage. Adjustable-rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a “margin” plus an “index.”

Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD), and the 11th District Cost of Funds (COFI).

When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period.

This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called “caps”. Suppose you had a “3/1 ARM” with an initial cap of 2%, a lifetime cap of 6%, and an initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%.

VA Loans – What are the different Home Loan Options?

VA loans offer military veterans exceptional benefits, including low-interest rates and no down payment requirement. This program was designed to help military veterans realize the American dream of homeownership.

This program was designed to provide housing and assistance for veterans and their families.

What kind of loan program is best for you?

Should you get a fixed-rate or adjustable-rate mortgage? A conventional loan or a government loan? Deciding which mortgage product is best for you will depend largely on your unique circumstances, and there is no one correct answer.

The many different types of home loans available can seem overwhelming. Should you choose a fixed rate, adjustable rate, or government loan mortgage?

The truth is there is no right answer. Choosing a loan type is an important decision that is best made after you have researched your options. Remember, taking the time to explore your options now can mean saving thousands of dollars in the long run.

Ask yourself the following questions to determine what loan type is right for you:

  • Do you expect your financial situation to change over the next few years?
  • Do you plan to live in your current home for a long time?
  • Do you feel comfortable with the idea of changing the mortgage amount?
  • Do you want to be free of the mortgage debt by the time your children go to college or you retire?

Sometimes, it is wise to ask your Discom Realty Realtor to connect you with a professional lender. Speaking with a lender might be the best move to help you decide which loan best fits your needs. Follow the general guidelines outlined below to get started selecting the best mortgage for your home.

How many years do you plan to stay in your home?

Here are some plan(s) to Consider

  1. 1-3 years = 3/1 ARM or 1-year ARM
  2. 3-5 years = 5/1 ARM
  3. 5-7 years = 7/1 ARM
  4. 7-10 years = 10/1 ARM or 30-year fixed
  5. 10+ years = 30-year fixed or 15-year fixed

Do you have additional questions about home loans? Or are you planning to buy or sell property this year – Discom Realty is ready to help you. Reach out and speak with one of our talented and friendly Realtors today! Call us at 407-739-2833. Thanks for taking the time to read ‘What are the different Home Loan Options?’ and we hope it has explained a lot about your potential home loan.

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