Buying a home is an exciting accomplishment. Whether you’re a first-time homebuyer or you’ve been through the process before, it’s helpful to understand the most common types of home loans. Here, we provide an overview of the loan options that you may want to consider in the future.
The fixed-rate mortgage loan is the most common type that you’ll come across. It’s usually designated for a 30-year payoff, but 15-year fixed rate mortgages are often used, as well. If you’d like a high degree of stability, a fixed-rate option may be an excellent choice for you. With this loan, you won’t need to worry about your payments increasing drastically as the market changes. While it’s possible that you’ll notice minor increases in your monthly payment due to fluctuating property taxes, in general, you can expect your house payment to stay predictable.
Unlike a fixed-rate loan, an adjustable-rate mortgage means that your interest rate will probably change on occasion. This type of loan isn’t as popular, namely because most homeowners prefer their payments to stay the same each month. However, an adjustable-rate mortgage has the appealing feature of (usually) starting with a lower-than-average interest rate. While this can be a plus for homeowners who plan to move after just a couple of years, it’s a bigger risk for those who hope to stay put for a while.
Veterans Affairs Loans
If you or your spouse are serving or have served in the United States military, it could be possible to secure a Veterans Affairs, or VA, loan. For qualifying participants, VA loans can be an excellent option. With this type of government-backed loan, down payments are not required. In most cases, the interest rate is low, making this type of loan as stress-free as possible.
Federal Housing Administration Loan
Saving a 20 percent down payment for a conventional loan can be a challenge. For aspiring homeowners struggling to come up with a large down payment, a loan insured by the Federal Housing Administration could be a solution. If you qualify for an FHA loan, you’ll only be required to raise a down payment of 3.5 percent. This is a big bonus for many households, and makes homeownership more achievable—even for individuals with low credit scores.
If you’re hoping to purchase a home in a high cost of living area, you may need to explore the jumbo loan option. In the Seattle area, a jumbo loan is defined as a mortgage amount exceeding $540,500. To qualify for this supersized loan, applicants will need excellent credit history and a low debt-to-income ratio. In addition to a credit score above 720, applicants should be prepared to present a sizeable down payment. For homes exceeding $1 million, it’s generally standard practice to put down 25 percent or more.
Buying a home can be a complicated process. To reduce confusion and stress, it’s crucial to work with a great team. When you’re ready to buy a home in the Seattle area, please feel free to reach out to us. We’re happy to help you find the property that’s perfect for you, and answer your questions every step of the way.