Education and research are crucial when it comes to home buying and mortgage shopping in Hampton Roads. With an infinite variety of loan options out there, Houser Homes has narrowed down the most popular and explained the differences and benefits of each to make it as straight-forward and easy to understand as possible.
One of the first decisions you will make as a home buyer is whether you want a fixed-rate or an adjustable-rate mortgage loan. All loans fall into one of these two categories. The Fixed-Rate loan is the most popular type of mortgage loan among homebuyers because it is the most stable and predictable. The interest rate and monthly payments stay the same over the entire repayment term, which is typically 30 years. This option is generally recommended for buyers who plan to stay in a home long term, for many years.
If you plan on living in a home for few years, you may want to consider the Adjustable Rate mortgage loan (ARMs). The interest rate will change or “adjust” from time to time over the life of the loan - typically, each year after an initial period of remaining fixed. An ARM usually offers a lower initial rate than fixed rate loans, but eventually adjusts.
Once you’ve determined whether you want a fixed rate or adjustable rate, you will need to decide whether you want conventional or government-insured financing.
Conventional
A conventional loan is not backed or guaranteed by the government in any way but may be insured by a private mortgage insurance company.
Government-insured
A government-insured financing is typically easier to obtain than conventional loans, especially for borrowers with smaller down payments or issues with their credit.
FHA Loan
The FHA loan is one of the most popular types of loans because it is offered to all types of borrowers, not just first-time buyers. The program is insured by the Federal Housing Administration under the Department of Housing and Urban Development. With the FHA loan, you are allowed to make a down payment as low as 3.5 percent of the purchase price. However, you will have to pay for mortgage insurance, which results in an increased monthly payments.
VA Loan
The VA loan is offered by the U.S. Department of Veteran Affairs and is generally limited to military service members and their families. The biggest benefit to this type of loan is that borrowers can receive 100 percent financing for the purchase of a new home with no money down. This loan can be used while serving active duty and/or your have discharged from the service. It can also be used more than once and in succession with other outstanding VA loans.
USDA
The USDA provides 100 percent for qualified buyers who live in rural areas. It is only offered to residents who have a low/moderate yet steady income, but are not able to obtain housing through conventional financing.
Ultimately, getting pre-approved will help you make the final determination with a loan officer. Your realtor can connect you with a loan officer and kick off the process of choosing a loan. Then you can begin to search for the right home for you and your family.
Are there any other loan questions you’d like to see on the Houser on Houses blog?