You have decided to buy a home. Overwhelming feelings are kicking in, excitement, concern, confusion! What type of loan is right for you? What are your options? There are many home loan options available in Washington State.
Home lending has shifted since the housing boom. There has been more government regulations placed on the lending industry. A positive side effect resulting from the new restrictions is a reduction in loan types, making for less confusion and more simplicity.
A good first step in deciding what loan is right for you is to ask yourself how long you plan to live in the property. A two bedroom condo could be a great place to start out for a few years but might not work if you plan to have a family in five years. Fixed rate mortgages are great for people who plan to live in a property a long time, adjustable rate mortgages are better for those with a move planned on the distant horizon.
Let’s start with fixed-rate mortgages. Fixed-rate mortgages are commonly popular due to the fact that it provides stability, it helps protect against inflation and people can accurately budget for a very long time with this type of loan. With a fixed-rate mortgage, interest rates stay the same for the entire term of the loan and your monthly payments won’t go up when the rates in the market do. Most people that have intentions of living in the property for over 7 years will usually opt for this option.
If this option doesn’t sound like it is for you, you can also consider an adjustable rate mortgage. With an adjustable rate, the size of your monthly payment will change over time. It will however be fixed for the first few years, ranging in time from 3-7 or even up to 10 years. Whether it increases or decreases depends on the market. More times than not, the rates will increase, which means higher after the initial fixed period your monthly payments will increase.
The unpredictability that comes along with adjustable rates often scares people, but what most people do not realize is that it can provide huge savings on interest within the initial years. The interest rates for this type of loan tend to be lower during the fixed period before it adjusts, compared to the interest rates on a 30-year fixed-rate loan.
After you have decided on how long you will live in your chosen property, you now need to ask yourself; conventional or government-backed loan?
A conventional mortgage is one that is not insured by the government in any way. It is made in the private sector (stand alone banks) with no backing from the government. A conventional home loan usually require a good credit score and about 20% down.
A government-backed loan however, is one that is insured by some type of federal agency. It is possible for the loan to be made in the private sector, but the lender is provided insurance by the federal government in case the borrower defaults on the loan.
There are several types of government-back loans:
FHA Home Loan: This home loan is available in Washington State and across the U.S. FHA home loans are insured by the Federal Housing Administration and made by lenders in the private sector, which is known as the FHA-approved lenders. Absolute Mortgage is a FHA approved lender. The lender gets paid by FHA if the borrower defaults (stops making their mortgage payment) on the loan. Clear advantages of an FHA loan are more lenient lending requirements; it requires a smaller down payment than most and people with inadequate credit can still borrower money to buy a home.
VA Home Loan: This home loan is available in Washington State and across the U.S. VA home loans are guaranteed (backed/insured like FHA) by the Veteran’s Administration and offers long-term financing to military service members and their families. This home loan offers a zero down payment.
USDA Home Loan: Overseen by the United States Department of Agriculture, this loan is designed for low-income residents in rural areas. These loans are typically seen throughout certain geographic and demographic parts of the country. In Washington State much of the state territory is USDA approved. Absolute Mortgage is a USDA home loan lender and can offer you a USDA home loan that has no down payment as long as you meet the geographical and income requirements.
Getting the right home loan for your unique situation can be an easy process. There are advantages and disadvantages to each loan. Your mortgage advisor will work with you to present the right options for you and your long-term plans. Everybody’s situation is unique. It is important to do your research and it is important for your mortgage advisor to do a thorough evaluation of your circumstances and goals.
Are you interested in taking the next steps? Click talk to an expert and one of our home loan experts will contact you.