Mortgage Options Available To The Home Buyer
Buying a home is not as hard as people assume, thanks to mortgage options. A Mortgage is a type of loan used to finance property purchases. It is a secured loan where the borrower must promise collateral if they cannot make payments. Mortgages allow you to purchase homes even if you do not have money to pay upfront.
Nowadays, there are many mortgage options that home buyers can take advantage of. For instance, Tundra Mortgage Brokers offers numerous mortgage options to home buyers. Let us look at some of these options:
The 30-Year Fixed-Rate Mortgage
This is a home loan with a 30-year fixed interest rate. It is the most popular mortgage option for home buyers because the interest rate does not change. Also, it offers lower monthly payments compared to short-term loans. However, lenders can clear the loan faster by increasing their monthly payments or making extra payments. Additionally, borrowers can qualify for more expensive homes thanks to the lower payments. That means qualifying for a 30-year mortgage is easier.
However, this type of mortgage features slightly higher rates. Paying interest for thirty years adds up to a higher cost compared to shorter-term loans. Also, it takes longer to build your home’s equity. Borrowers may be tempted to purchase costlier homes with high upkeep because of the low fees.
The 15-Year Fixed-Rate Mortgage
The loan offers the same interest rate over its 15-year term. While it features higher monthly payments than the 30-year mortgage, borrowers pay less total interest. Therefore, it allows you to settle faster and with less total interest.
However, you will need a reliable income to cover the monthly payments and other living costs to qualify for this home loan. Other benefits of this mortgage option for home buyers are:
- It allows you to build faster equity
- It helps you save money in the long-term
- It is the shorter path to full homeownership
The Adjustable-Rate Mortgage
This type of loan has a fixed interest rate at the beginning, which lasts for a specified period (1-10 years), after which it adjusts periodically. For instance, a fixed initial rate may be set for the first five years. Then after five years, it starts changing annually. The initial rate is usually lower than most mortgage options. Therefore, this loan gives you a few years of predictable and low payments.
However, you cannot predict the monthly payments after the fixed-rate period because they will depend on the interest rates. For instance, if the interest rates rise, your payments will increase, and vice versa. So, it would be best if you did not choose this option on the assumption that the payment will decrease.
Also, this mortgage option is more complicated than others as it features complex rules, fees, and structures. Therefore, if you choose it, it would be wise to fully understand what you will be getting into. This mortgage option is fantastic for home buyers that do not want to pay the mortgage for a long time.
As the name suggests, an interest-only loan requires the borrower to pay only the lender’s interest charges. That means you will not be paying back any of the principal. It also means you will not build any equity in the house besides its down payment or gains from local market situations. Interest-only mortgages are typically offered for a short term (five to ten years).
It is an appropriate mortgage option for disciplined borrowers that make enough money to cover periodic principal payments. Also, borrowers can pay down the principal balance when they get lump sums like bonuses. For this reason, lenders require potential borrowers to prove that they own substantial assets or show their ability to pay before qualifying for the loan. It is a fantastic choice for home buyers that do not intend to remain in their new house for a long time.
Conventional Home Buyer Loans
The federal government does not back conventional loans. There are two types of traditional loans; the first ones are conforming loans, which conform to FHFA standards, and the second type is nonconforming loans, which do not conform to federal standards.
Conventional home buyer loans cost lower than other mortgage options. However, they have slightly higher interest loans. So, conventional home buyer loans are ideal for borrowers with a strong credit score that can afford to make high down payments. While some consider these loans risky, they are worthwhile if you can afford them.
Government-insured loans are backed by government agencies, like the FHA, USDA, and VA. So, there are three government-issued loans, depending on the government agency that backs them. They are:
- FHA (Federal Housing Administration) loans have the most competitive rates and allow you to become a homeowner without paying a large down payment. Down Payments for FHA loans are as low as 3.5%, and people with credit scores as low as 500 can qualify for these loans. However, they require two mortgage insurance premiums that increase your overall mortgage cost.
- USDA (US Department of Agriculture) loans help borrowers with moderate to low incomes purchase homes in rural areas. These loans do not require any down payment. However, they have extra fees like an upfront 1% payment of the loan amount. USDA loans also have an annual fee. Regardless, you can use the loan to finance the upfront fee.
- VA (Department of Veterans Affairs) loans provide flexible and low-interest mortgages for members of the US military (active and veteran US military members) and their families. VA loans do not have a minimum down payment, mortgage insurance, or credit score requirement. Also, closing costs when buying a home with a VA loan are capped and paid by the seller. However, these loans have a funding fee, a specific percentage of the total loan amount. So, borrowers must pay the funding fee upfront at closing.
We offer numerous mortgage options for home buyers. Therefore, we are a fantastic place to start if you want to know what options are available for you and whether you qualify for them. We also have mortgage refinance and investment property loans that you can apply for online. Let’s do this!