Which is the best loan for me?
You have many loan options!
Learning about your loan options, will help you decide on which loan is best for you!
Today, borrowers have many lending sources and different loan types to choose from. Loans have different features, and choosing the right loan type, will depend on various factors. Like the length of time you plan to live at the home, the amount of your downpayment, your income, debts or the type of loan you are qualified for by a lender. We can help you determine which one is right for you, depending on your goals. Everyone's situation is different and we understand that. We'll help you sorted it all out!
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The most common loan types used today
Mortgages are complex and offer many possibilities. Explore terms, types and different interest rate types with your lender. Ask about the different loans they offer to learn more. Picking the right one can save you thousands of dollars! Picking the wrong one can be costly!
The 30 Year Conventional Loan
This type of loan is perhaps the most popular type of mortgage loan used by borrowers and offers a fixed interest rate for 30 years. This loan is best for a home buyer that plans to live at the property for 10 years or more and desires a lower monthly payment. Typically, buyers that use this type of loan, put down 20% of the purchase price, as a downpayment. In doing so, they avoid paying Private Mortgage Insurance (PMI). Many lenders also offer 30 year conventional loans, with as little as a 5% downpayment. However, the borrower will be asked pay for PMI. Speak with your lender and ask about the different 30 year conventional loans they offer.
The Conventional 15-20 Year Loan
This type of loan offers a shorter term and a lower interest rate than a 30 year conventional loan. However, the monthly payments will be higher, since the borrower is amortizing the amount borrowed, over a shorter period of time. This loan is best for a home buyer that plans to live at the property for 10 years or more and desires to save on interest payments in the long run. Typically, buyers that use this type of loan, put down 20% of the purchase price, to avoid paying PMI.
Did you know compared with single male borrowers, single female borrowers pay higher rates that add up to thousands of dollars in additional costs? Don't let this happen to you! LEARN MORE
FHA Conventional Loan
This type of loan is backed by The Federal Housing Authority and permits buyers to purchase a property with as little as 3.5% downpayment, plus closing costs. The property must qualify under FHA guidelines and the borrower must have FICO credit score of 580 or better. Borrowers with credit scores below 580 may be required to put down a minimum of 10% as a downpayment. The closing costs may can be as little as 2% or as high as 5%. PMI is required under current law, and may be required to be paid throughout the life of the loan, regardless of any equity build-up, or the amount of the downpayment. This is a good loan for "first time" home buyers or repeat buyers that wish to make a low downpayment and avoid paying rent. Later, if the borrower desires to remove the monthly PMI payment, they will need to refinance the loan, once they have 20% or more in built-up equity.
Adjustable-Rate Mortgage (ARMs) Loan
The interest rates on an ARM loan are usually lower that a conventional loan of 30 or 15 years. They typically have a fixed interest rate for a period of five to seven years, which means you'll enjoy a lower monthly payment during the fixed period. This type of loan is attractive to buyers, who anticipate not living in the property longer than the term period. After the term period, and depending on the ARM loan, the interest rate will adjust yearly for the term of the loan and the interest rate may be higher or lower than the original term rate. If higher, your monthly mortgage payments may increase substantially. Avoid this type of loan if you may not have the means to pay a higher rate at the end of the term. According to the Mortgage Bankers Association, ARMs make up about 10% of all loans underwritten today.
Veteran Administration Loan
This type of loan is exclusively offered to active or retired members of the United States Arm Forces, as a benefit for their past or present service. This type of loan does not require any downpayment or PMI. The borrower only needs the cash-at-hand to cover closing costs, which typically are between 2% - 3% of the purchase price.
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Hard-Money or Private Lender Loan
This type of loan is typically used by buyers that cannot obtain financing from banks, credit unions or mortgage brokers. Hard-Money lenders or private lenders, usually require a large deposit, charge higher interest rates and offer shorter repayment terms. If taking out this type of loan, make sure you read the fine print and understand the exact terms of the loan documents. It is wise to seek legal advice, before signing any loan document, with a hard-money or private lender.
For more information on the types of loans available, the Consumer Financial Protection Bureau has more information. Visit the website clicking on the link:
Who funds mortgages?
Know who is lending you the money! Whether you are dealing with a lender or a broker may not always be clear cut. Some financial institutions operate as both lenders and brokers. Therefore, be sure to ask whether a broker is involved, since most brokers’ advertisements do not use the word “broker” at all. This information is important because brokers are usually paid a fee for their services, which may be separate from and in addition to the lender’s origination fees. A broker’s compensation may be in the form of “points” paid at closing or as an add-on to your interest rate, or both. You should ask each broker you talk with how he or she will be paid, so that you can compare the different fees.
Home loans are available from several types of mortgage lenders, like thrift institutions, commercial banks, mortgage companies, credit unions and hard money lenders. Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price. You can also get a home loan through a licensed mortgage broker. Brokers arrange transactions rather than lending money directly; in other words, they find a lender for you. A broker who regularly deals with several lenders can provide you with a wider selection of loan products and terms from which you can choose. Brokers will generally contact several lenders regarding your application, but they are under no obligation to find you the best deal, unless they have contracted with you to act as your mortgage broker. You should consider contacting more than one broker, just as you should more than one banker or thrift institution. If you are member of a credit union, you should also contact them.
A word to the wise...
Avoid Credit Purchases: In the months prior to buying and in particular, throughout the purchasing process, up until closing, avoid taking out a car loan, leasing a car or other big-ticket items on credit. Taking out a loan to purchase a car, leasing one, or any other large credit purchase, may negatively impact your ability to qualify for a loan and purchase your home.
Avoid making large cash deposits: In the months prior to buying and throughout the process, avoid making large deposits into your bank accounts, other than the proceeds of your sale. Lenders will ask you about the origins of large cash deposits, to make sure that you are purchasing with your own cash and it's not a loan. And also to adhere to Federal Money-Laundering Laws, and reporting requirements. Making large cash deposits may delay your loan approval and jeopardize your purchase. However, transferring funds from one personal account to another is OK.
Cash Gifts are OK! If you are receiving a cash gift to purchase your home, lenders may require to you to provide a signed letter, from your benefactor, stating that it's a gift and not a loan.
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