During the Great Recession, cash took over real estate as banks tightened their lending practices, effectively cutting off the supply of home loans all across the country. But now, with the economy continuing to improve and the housing market operating in full-swing, mortgages are back on the main stage of the home buying arena.
In this article, we’re going to take a look at the different mortgage options that are available to today’s homebuyers, as well as other related expenses that you can expect to incur when getting a loan.
Choosing a Lender
The good part about getting a home loan – as least if you have decent credit or better – is that they aren’t all that difficult to find. You can obtain a mortgage from just about any financial institution such as your favorite bank or credit union, or from a licensed mortgage broker – a licensed professional who would typically work with a number of different lenders.
If you need a little guidance to connect with an experienced loan officer or mortgage broker in your area, talk with your Realtor. Real estate agents work with financial service professionals on a daily basis and know the ones who have gotten the best results for their clients.
Types of Home Loans
No matter which direction you go to obtain a home loan – whether directly through a financial institution or with the assistance of a mortgage broker – you’re going to find yourself presented with a number of different loan options to choose from.
Conventional loans are the most common type of real estate loan, and what most people typically think of when they hear the word ‘mortgage’. With a conventional home loan, you can expect to make a down payment in the range of 5-20% or more. For most buyers with a sizable down payment and good credit, getting a conventional loan is relatively quick and easy.
There are, however, a couple of different types of conventional loans you should be aware of:
Fixed-Rate – Fixed-rate loans are a core lending product. Borrowers can expect to have their principal and interest payments to be standardized throughout the life of their loan – the repayment amounts won’t change from month to month or year to year.
Adjustable Rate – Unlike fixed-rate mortgages, adjustable-rate loans feature an interest rate that changes in accordance with the greater economy. For most consumers, this means seeing rates – and monthly payments – increasing after the often-low introductory interest rate expires 12 or 24 months down the road.
FHA – FHA loans are an extremely popular type of home mortgage because of their low down payment requirement: most borrowers need to bring just 3.5% of the purchase price to the closing table. FHA loans aren’t issued by the Federal Housing Administration, however; they simply insure the financial institutions doing the lending. If you opt for an FHA loan, expect more rigorous standards regarding the quality of the property that you’re considering – many fixer-uppers may not meet their minimum requirements.
VA – A special loan product designed exclusively for past and present members of the armed services, VA loans feature some of the best interest rates out there and have lower requirements for approval. One of the biggest benefits of this type of loan is that it requires no money down.
When you get a mortgage, you’re likely to pay for more than just the principal and interest. Here are a few of the other expenses that you can anticipate paying either at closing or on a monthly basis:
Closing Costs & Fees – Encompassing everything from property surveys to point purchases to broker fees, expect to see a few charges related to your mortgage on your closing statement. Some buyers opt to pay these upfront, while others choose to incorporate them into the amount they’re financing.
PMI – Unless you’re borrowing less than 80% of the appraised value of your home, you’re going to have to pay for private mortgage insurance (PMI). This is an extra product which helps protect your lender in case you default on your loan and they’re not able to recoup their losses through the foreclosure and sale of the property.
Insurance – Home insurance is exactly what it sounds like, but if you’re getting a mortgage, it’s not optional. Lenders require borrowers to carry insurance on their homes so that they’ll be covered in the event of disaster or destruction of the property. While some homeowners pay their insurance premiums separately, the amount is often worked into the monthly mortgage amount.
Learning about your loan options is just the first step in finding your next home. If you’re not already working with a licensed and experienced Realtor, now is the time to find one. You should also be talking with a loan officer or mortgage broker about getting pre-approved for financing – this will make the home search a whole lot easier.
So what are you waiting for? Give me a call today and let me help you during the homebuying process.
New Harbor Realty