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I have made an offer on a home. What kind of home loan should I get?

Purchasing a new home is an exciting task for some however when it comes to figuring out finances things can start being challenging. Deciding on a lender and a mortgage is not a difficult task once you are aware of the financial terminology. If you can learn how to ride a bicycle with someone's instructions then you should be able to figure out which mortgage will work best for you. Typically, most sellers require the buyer to attach a pre-approval letter from their lender with the offer, but it is not mandatory. If you went through the pre-approval process then you might have a slight idea about what type of mortgage you will get? Below I will list different kinds of mortgages available for a typical homebuyer or investor.

1. Conventional Mortgage: Conforming and non-confirm conventional loans are not insured by the Federal government of USA. Non-conforming loans are loans that aren’t bought by Fannie Mae, Freddie Mac, FHA, USDA or VA where conforming loans have some restrictions attached to them. It would be best to discuss furthermore with a local lender as there could be some variations applicable due to state, county or even your income bracket. 

2. Jumbo mortgages: These mortgages are basically conventional loans with no loan limits but have tougher requirements such as FICO score over 700, 15-20% down-payment, stricter debt-to-income ratio etc. Folks are looking to buy an expensive property tend to choose these however you must prove the bank that you will be able to pay off the loan with taxed income in the coming future. Rates on jumbo loans are not very high and almost meet with conventional loans.

3. FHA/VA & USDA Loans: US government is not a direct lender to consumers but it does play a key role in helping more Americans own a home or piece of land for agricultural usage. These loans are backed by the FED and normally have low-interest rates than conventional mortgages. These loans require additional paperwork but requirements are eased off. In some cases, you only need to make 5% down-payment at the closing date.

Fixed rate and Adjustable rate mortgages (a.k.a ARM) exist to help consumers choose the interest rate they want to pay over the years. Fixed rate mortgages are commonly used by first-time homeowners however & I recommend them as well. Be careful if you decide to get an ARM, do the research before signing anything.

Fixed rate mortgage allows you to keep your interest rate locked in for the entire life of the note. Statistics have proven that rates have only gone up while comparing over a period of 10 years, not down. There is a detailed blog post for those who need a full step by step guide to buying a home. I encourage you to speak with a Realtor & Lender representative in your area to understand more about the process & terms instead of "googling" everything! 

Posted on: Dec. 26, 2018, 11:14 a.m. UTC

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