Owning a home of their own is a dream for most people. Yet taking out such a large loan can be intimidating.
Whether you have already purchased your home and are looking to refinance, or you are getting ready to take out your very first mortgage, we have your handy guide to the best home loans this year!
Why Would I Want to Refinance my Loan?
From time to time, it is a good idea to take a look at the terms of your existing mortgage loan. You might find that your interest rate is much higher than one you could currently receive, or that the term of the loan could be changed for financial gain.
You might want to consider a refinance if:
- You have an ARM or adjustable-rate mortgage. These are loans that have a fixed rate at the beginning of their lifespan but change to an adjustable rate after a few years. It can save you thousands of dollars in the long term to refinance an ARM into a fixed-rate loan, like an FHA loan.
- You would like a lower interest rate. If you are noticing that today’s interest rates are much lower than yours, you might want to consider refinancing to receive a lower rate. While you might pay some fees upfront, over the life of the loan that lower rate could stack up to thousands of dollars saved.
- You want to do home improvements or get cash out for your equity. If you have projects to do or simply want access to the equity you have in your home without selling, you can do a cash-out refinance. Sometimes, you will even be able to get better terms than your original mortgage loan as a bonus!
What Kinds of Mortgage Loans are There?
You have quite a few options when it comes to home loans. The kind you choose will depend largely on your financial situation, goals, and the kind of home you are purchasing or refinancing. For instance, many new home buyers might only qualify for an FHA loan.
While there are loans used in special situations, we will focus on the ones statistics show are most commonly offered and used.
Conventional or Fixed Loan
This is the vanilla ice cream of mortgages – plain, simple and to the point. A conventional loan offers the same terms through the life of the loan. Your interest rate stays the same no matter what, and you pay the same payment every month for the life of the loan.
Conventional loans require you to put twenty percent of the purchase price down, or you will pay private mortgage insurance – an additional fee on top of your monthly payment.
Conventional loans also have strict limits with regards to credit scores and debt-to-income ratios.
An adjustable-rate mortgage works similarly to a conventional loan, except that instead of a fixed interest rate over the life of your loan, you get a fixed rate only at the front of your loan.
So why would someone consider an ARM instead of a conventional loan?
If interest rates are high, you might pay less if you accept an ARM upfront. The initial interest rate will be lower than a conventional loan will offer. You always have the option to refinance later to a fixed rate when interest rates improve.
An FHA loan is a special and popular type of loan that is insured by the Federal Housing Administration. Because FHA loans have this backing, they are more widely available to first time home buyers and buyers with lower credit scores or higher debt to income ratios.
However, FHA loans also have stricter property standards, meaning the property you are trying to buy has to meet certain criteria.
If you are trying to decide between an FHA loan program and a conventional loan, your best bet would be to talk to a mortgage expert about the different loans and which would work best for your situation.
A VA loan is a mortgage loan offered to veterans, active-duty military personnel, and sometimes, their spouses. VA loans offer special terms, like no down payment, and are guaranteed by the Department of Veteran Affairs.
Jumbo loans are for properties too expensive for the Federal Government to purchase or guarantee. These special loans allow financing for larger properties at slightly higher interest rates than are offered for less expensive homes.
A combo loan uses several loans instead of one. Combo loans work best for buyers who cannot afford to put twenty percent down but want to avoid paying private mortgage insurance.
What Does It Take to Qualify for a Home Loan?
The criteria are different for each type of loan. For example, the two most popular, an FHA loan and a conventional loan, are shown below.
- FHA loan. It requires a credit score of at least 580 with a down payment of 3.5%. A slightly lower credit score might be accepted with a down payment of 10%. Your debt to income ratio must be 43% or lower. You will need to prove your employment for the last two years.
- Conventional loan. It requires a credit score of 620 to 640. Down payments can be as little as 3%, but you will pay mortgage insurance for less than 20%. Your lender will need proof of income and for you to have a debt to income ratio of 50% or less.
What are the Best Home Loans for Me?
If you are trying to find the best home loans for your particular situation and financial needs, your best bet is to talk to a qualified mortgage lender. They can look at your credit score, income, debt to income ratio and pair you with the right loan option and terms.
Call 7th Level Mortgage today to learn what kind of home loan is best for you!
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with every phase of each mortgage transaction. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.