Mortgage discussions usually involve interest rates for fixed loans, options for adjustable rate loans and, depending on the neighborhood, jumbo loans. But mortgage options involve much more than deciding between a 15-year or 30-year fixed loan or going with an adjustable rate. While most buyers usually begin by looking at conventional loans, a nonconventional mortgage may be a better fit. When you know your mortgage options, you can make the best decision in what will be one of the biggest financial decisions of your life.
Before you look at mortgage options
Mortgages are best seen as a tree of options, allowing you to make different choices along the way to tailor a lending situation that fits your lifestyle. To find the best loan option for you, you need to consider certain things.
The first question to ask yourself is how long you intend to stay in the house. Many first-time buyers plan on staying in the house for only a few years, and that can change which loan options are best for you.
The second question is how much of a down payment you have available. Conventional loans often require more money up front. Playing around with down payment options can increase or decrease your buying power as well as change your monthly payment.
Of course, every house purchase should involve asking yourself how much you can afford per month. That answer often drives the other options.
Choosing a mortgage rate type
One important choice among all the other mortgage options is whether you want a fixed rate or adjustable rate loan. Fixed rate loans, most frequently seen in 15- and 30-year terms, provide a consistent principal monthly payment and interest rate.
If your goal is to move within the next three or five years, however, you might find an adjustable rate loan to be more beneficial. There are different options on when the rate adjusts, but it can save you money in the short term. If you intend to live in the house for a while, adjustable rate loans can become very costly.
All types of rate mortgages can be combined with either a conventional or nonconventional mortgage, and most people might only consider conventional loan options at this point. Do not limit yourself to conventional loans, however, as there are more options available.
Consider nonconventional mortgage options
The first nonconventional mortgage available to most people is the FHA loan. FHA loans are secured by the Federal Housing Authority.
The benefit to an FHA loan is the down payment can be as low as 3.5% Also, the private mortgage insurance (PMI) is through the FHA, requiring a lower credit score to qualify. FHA mortgages will require a PMI in all circumstances, due to the lower down payment.
In addition to FHA loans, there are specialized mortgages if you meet certain requirements. Veteran Affairs offers a VA-backed loan for military personnel, including National Guard, during and after their service. These loans offer higher loan value with no down payment and no PMI, as well as no lender fees.
Similarly, the United States Department of Agriculture (USDA) offers mortgages to borrowers who live in rural areas and meet certain low to medium income requirements. If you are eligible for a USDA loan, you can receive 102% financing and fixed rates with no PMI required. Also, the USDA accepts self-employed income.
Another nonconventional mortgage is a jumbo loan, though these mortgages are specifically for home purchases with a loan value above the federal limit that Fannie Mae and Freddie Mac will guarantee. Though this amount will vary by location, jumbo loans are required for any amount above the limit.
Renovation loans and state bond programs are available as well, depending on your lending needs. With all the nonconventional mortgage options available, finding a loan that fits your needs can be an easy task. Unfortunately, some lenders only provide basic loan programs. You need a lender who can find you the right mortgage for your specific circumstances and needs.
Lastly, first-time homebuyer options are available if you don’t have a large down payment. These loans often come in the form of a grant provided by the state or county. Depending on the loan, you may have to repay the grant, or it may be forgiven over time.
First Centennial Mortgage has access to all the options and combinations that can make your lending experience a success. Call us today to see if we can find you the right nonconventional mortgage to make your home buying dreams come true.