For the most part, homebuyers know that they’re going to need some sort of financial assistance to pay for a new house. After all, purchasing a house and paying a mortgage can be an enormous expense, so there are plenty of lenders out there who are willing to help.
But there are several different types of mortgage and loan options that you can choose from, each coming with different pros and cons- and each of which is a more appealing option to some prospective homebuyers than to others.
Here are three of the most common types of mortgage options available for homebuyers.
A conventional loan is, in a sense, exactly what it sounds like: a loan that the government does not have any official involvement with. There are two types of conventional loans: conforming loans and non-conforming loans. The distinction between them is simple: conforming loans conform with the set of standards that the Federal Housing Finance Agency (FHFA) has officially established, while non-conforming loans do not.
Conventional loans tend to be popular because in most cases, the total sum of the borrowing costs is usually less than those of other mortgage types, and because down payment minimum requirements are usually very low. On the other hand, conventional loans require a credit score of at least 620, meaning that homebuyers with low credit scores often won’t be able to receive one.
Jumbo loans are another type of appropriately-named mortgage, as they are not within the FHFA standards and are, as their name would suggest, very large. Jumbo loans are most commonly found in areas where houses are most expensive, such as New York City, the state of California, and popular vacation destinations.
The major pro of jumbo loans, aside from the fact that they are enormous, is that the interest rates are often favorable in relation to other types of mortgages and loans. The downsides, though, can be deterring for some. Typically, a down payment of at least 10% is required, and oftentimes much higher. The minimum FICO score needed to qualify is usually 700- if not greater. And the burden of proof will be on you as a homebuyer to demonstrate that you can truly pay back the loan before too long.
A fixed-rate mortgage is often seen as the most consistent type of mortgage for a homebuyer. Fixed-rate mortgages keep the same interest rates from your first payment to your last, and most people often pay them back over a period of thirty years or less.
The obvious pro of a fixed-rate mortgage is that the lack of fluctuation of the interest rates will make it easy for a homebuyer to budget the necessary monthly payments. But on the other hand, these monthly interest payments are often higher than most other types of loans or mortgages.
Are you looking to buy or sell your home, and looking to find the right realtors to help you do so? Reach out to our team at Drew Sineath & Associates, and we’d be happy to help!