Choosing a Mortgage Loan
Mortgage Loans 101
Finding a lender, determining how much you can borrow, and deciding on the right loan program for YOU is one of the most important parts of the home buying process. Below is a brief summary of each kind of loan that a lender may provide. Every lender has different options available to them, and can help YOU find the loan that best suits YOUR needs! Need a referral? Please feel free to contact us at The Elaine McDonald Team for help in your home buying process.
Fixed Rate Mortgage
- Interest rate as well as monthly principal & interest (P&I) payments remain the same for the life of your loan.
- Often times a good choice for those homeowners planning to live in their home for several years.
- Generally available in a variety of term lengths, i.e. 10, 15, 20, 25, and 30 year terms.
- Protects from the possible rise in mortgage rates for the life of the loan.
Adjustable Rate Mortgage Loan
- Interest rate as well as monthly principal & interest (P&I) payments remain the same for an initial period (typically 5, 7, or 10 years) then adjust annually.
- Often attractive to buyers who plan to be in their home for a short period of time or know their income will increase in the future.
- Typically have a lower initial interest rate, but can become higher over time depending on market fluctuations.
- Loans available in a variety of term lengths, i.e. 10/1 year, 7/1 year, 5/1 year, 3/1 year programs.
- Includes an interest rate cap which sets a limit on how high the interest rate can increase.
FHA Mortgage Loan
- Private loans insured by the federal government
- Down payment options as low as 3.5% for borrowers.
- Available in a variety of fixed rate and adjustable rate loan options.
- May allow you to use a gift or a grant for all or a portion of your closing costs.
- Borrowers are required to pay mortgage insurance, which slightly increases the monthly payment.
- Income and credit are often less of an issue with this program and helpful to borrowers who many have low credit scores, various job changes, etc.
VA Mortgage Loan
- Available to qualified military veterans, reservists, active duty personnel, and/or eligible family members.
- Only available for personal primary residences and cannot exceed a $417k loan limit.
- Typically requires a one-time VA funding fee that can often be financed into the loan.
- Available in a variety of fixed and adjustable rate loan options.
- Does NOT require monthly mortgage insurance premium.
- Private loans insured by the federal government.
- Allows closing costs to come from a gift or grant.
- Provides low and/or no down payment options.
USDA Mortgage Loan
- Government funded program that allows borrowers to typically put 0% down on a home.
- Income limitations, i.e. borrowers are not able to make more than a certain amount to qualify.
- Excellent option for individuals with a lower income or less than perfect credit.
- Available to borrowers who are seeking to purchase in “rural areas”
- 30 year fixed rate term with NO mortgage insurance required.
- Non-conforming loan typically for amounts higher than $417K.
- Similar loan programs compared to fixed, adjustable and FHA.
- Interest rate is generally higher due to the typical lending amount and risk placed on the lender.
- Short term loan that converts to a permanent loan upon completion of the home.
- Great for a borrower who already owns land, whereas the land can often be used as collateral.
- During construction money is dispersed and the borrower is charged interest based on the amount dispersed.
Need help or have more questions? Call us today and we can point you in the right direction. Let The Elaine McDonald Team help YOU make YOUR dreams of homeownership come true.