To identify the right home loan for you, you’ll want to assess the terms associated with some of the best mortgage plans on the market. It’s going to be a long-term financial commitment, so you should carefully assess your obligations vs. needs and budget.
What is a Mortgage?
A mortgage is a home loan and usually has these key attributes:
- Principal: This is the loan amount you receive to purchase a home.
- Interest: This is the main price of the mortgage that you’ll repay over time (there are other costs, though).
- Monthly installments: These are the payments you make each month toward clearing your mortgage debt.
- Annual percentage rate (APR): The APR indicates the total cost of the mortgage, including the interest rate and other fees.
Types of Mortgages Available for Homebuyers:
- Traditional Mortgages: These loans aren’t backed by the federal government. To qualify for such a mortgage, you’ll need a decent level of financial stability and good credit. If you can also afford a 3% down payment, you may get a standard loan backed by Fannie Mae or Freddie Mac. To get a conventional home loan without private mortgage insurance (PMI), you’ll often need to pay 20% upfront.
- Conforming Mortgages: These mortgages can’t exceed a maximum limit set by the Federal Housing Finance Agency (FHFA). There are different limits for different locations. In places like New York City or San Francisco, the applicable limits are higher as homes there cost at least 115% more than the baseline loan limit.
- Non-conforming Mortgages: Loan amounts or underwriting rules prevent Fannie Mae and Freddie Mac from buying or selling non-conforming loans. Jumbo loans are a typical example of these types of mortgages. They usually offer a loan amount that’s higher than non-conforming loan limits, hence the term jumbo. Lenders assume a higher risk while issuing these loans, requiring borrowers to have larger cash reserves, raise 10% to 20% down payment, and have stellar credit.
- Federal Housing Administration (FHA) Loans: Government-guaranteed FHA loans are some of the best mortgage plans available to low- and moderate-income borrowers. They’re ideal for homebuyers who don’t qualify for conventional mortgages. With a FICO score as low as 500, you may qualify for these loans from FHA-approved lenders by making a 10% down payment. Besides making a mandatory down payment, borrowers must purchase an annual mortgage insurance premium (MIP).
- Veterans Affairs (VA) Loans: VA mortgages are insured by the U.S. Department of Veterans Affairs. If you’re a qualified military service member or veteran, you can use this facility to finance a home purchase 100% without making a down payment. VA loans have lower interest rates, fewer closing costs, and don’t require PMI.
- S. Department of Agriculture (USDA) Loans: Low-income borrowers in eligible rural areas can access these USDA-insured mortgages. Qualified homebuyers may get these loans with little or no down payment. The mortgages allow people with low household incomes and who can’t afford a down payment to own a home. Typically, beneficiaries have little savings and bad credit, so they wouldn’t qualify for a conventional mortgage.
These are some of the best mortgage plans to explore as a prospective homeowner. However, most lenders will require that you obtain homeowners insurance before approving your mortgage. This is where we come in at Hoffman Brown Company–to help you find an ideal policy for your dream home.