With the vast number of home loans available and the various jargon of obtaining a mortgage, choosing the right one can be an overwhelming process. While it’s a smart idea to speak to an experience CT Real Estate lawyer that can guide you through the process, we’ll go over the various mortgage programs available to homebuyers to give you all of the information you’ll need when purchasing a home.
Nearly every type of home loan program available offers the option of a fixed-rate or an adjustable-rate mortgage. Simply put, a fixed-rate mortgage has the same interest rate for the life of the loan. On the other hand, an adjustable rate loan (ARM) will have an initial low interest rate, typically for the first 5 years, with the rate will increasing annually.
For these two types, there are a number of durations for mortgages:
30 Year Fixed-Rate: The most common term home owners select, this mortgage will have the lowest monthly payment and your interest rate will never increase.
15 Year Fixed-Rate: This will have a higher monthly payment than a 30-year fixed-rate. However, more of your mortgage payments will be put towards paying off the principle balance. Typically, 15 year mortgages have a lower rate than 30-year mortgages (~1% less)
5/1 ARM: As mentioned before, an adjustable-rate mortgage has a very low initial rate for the first 5 years. Once the 5-year period has elapsed, the interest rate increases each year. It is for this reason that ARM mortgages are best suited for buyers that plan on either a) plan on paying off the loan in 5 years or less or b) staying in the home for less than 5 years.
The following loans are insured by the government in the event that the borrower defaults on the loan, which makes the mortgage less risky for lenders and therefore allows for lowered loan requirements.
FHA Loans: One of the most popular loans for first-time homebuyers, FHA home loans have the lowest credit score requirements of any mortgage type on a graded scale:
The down payment can be a gift/windfall from a family member or friend, as well as many first-time homebuyer programs, grants, and financial assistance. However, FHA loans come with a mortgage insurance premium (MIP) as a downside, which is typically 0.85% of the loan amount annually.
FHA 203(k)Rehab Loans: Functioning as a type of home renovation loan, FHA 203(k) loans, help fund the purchase of a home that may be classified as a “fixer-upper” while being in livable condition. Having the same loan requirements as the FHA does, FHA 203(k) loans require a 3.5% down payment and at least a 640 credit score.
VA Loans: These loans are for veterans, offering zero down payment, 100% financing, and no private mortgage insurance (PMI) (which can save nearly $2,000 annually)
USDA Loans: For those that live in rural area (which includes 95% of the USA, as defined by the USDA), you can receive a no-down payment mortgage with low mortgage insurance fees. However, nearly all USDA home loans require a 640 credit score or higher to qualify.
[If you’re wondering which of these loans is best for you, consider contacting a Connecticut Real Estate Attorney to guide you the process. Click here to begin]
Conventional Loans: Known as “conforming loans”, as they meet the guidelines of Freddie Mac and Fannie Mae, conventional loans are offered by private lenders and are not insured by the government. While conventional loans require PMI at around 0.50% in most cases, there are more stringent guidelines to qualify for one, including a 620-640 credit score and down payment between 5% and 20%--however, PMI isn’t required if at least 20% is put down. PMI cancels out once the LTV (loan-to-value) reaches 78%.
Conventional 97 Mortgage: Similar to a normal conventional loan, conventional 97 mortgages only requires 3% down payment (which stands for 97% of the loan-to-value, 100% less the 3%). It also should be noted that this form of loan only requires 3% down, while FHA loans require 3.5% down.
Exceeding the conforming loan limits of Fannie Mae and Freddie Mac, a non-conforming loan is in excess of the conforming loan limits ($424,100 in most areas of the U.S., and $635,050 in high-cost areas.)
Jumbo Loans: Difficult to qualify for because of the higher loan amount (up to ~$1 million), jumbo loans require at least a 680-700 credit score and a high down payment, usually between 15%-20%
Super Jumbo Loans: If you need a loan for over $1 million , then a super jumbo loan can provide up to $3 million dollars. However, super jumbo’s difficult to qualify for and require excellent credit.
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As you can see, there are many different types of mortgages available for home buyers. However, you may still need guidance. That’s where a Connecticut Real Estate Attorney can make the process easier and work on your behalf. Consider clicking here to speak with CT Real Estate lawyer about the best mortgage for you today.