Today we are going to talk about some lending terms that you may hear during the home buying process. Before you begin the Pre-qualification process, you may want to know what programs are available to you. So first let’s talk about the word term. Mortgages are availble in 15, 20, or 30 year terms, but one little secret that some don’t know about is that you can make your loan term whatever you want it to be. So the lender can amortize your loan for a term that you choose, whether that be 18 years or 28 years.
The difference between a fixed and adjustable interest rate
A fixed interest rate is going to be the same through the term of the loan meaning that if you get a 30-year term and you decide on a fixed rate your payment will stay the same for the entire 30 years. no Now for special circumstances sometimes people choose an adjustable-rate mortgage. This type of mortgage starts with a very low-interest rate and increases during the term. You can actually have that term fixed for a certain amount of years, let’s say you want for the first 5 years, and then it starts adjusting. When is it adjusts it is based on the market conditions, so this is a good loan only if you are looking to stay in the home short-term or maybe you’re going to have a significant increase of income in the next couple of years and this type of loan will help you get into the real estate market
A conventioanl loan is the most common type of loan you are going to hear in the market. A conventional loan is typically for somebody who has good credit with a FICO score of at least 640 and their debt to income ratio is under 45%. If you do not put 20K down on this type of loan you will have private mortgage insurance based on your credit score and your loan to value.
A jumbo loan is a loan that is over the county’s loan limit. Each county has it’s own limit based on values in the area. With these loans there may be some additional guidelines that are going to be involved and the interest rates are typically higher.
Government Backed Loans
You may have heard of the term FHA mortgage. This loan is a loan that you only need 3.5% down and the guidelines are a lot more lenient. You can have a lower credit score or a higher debt to income ratio. With this loan there is a mortgage insurance premium, and you will need to refinance in order to remove it. A VA loan is a loan for veterans, active duty, reservist, or the surviving spouse of a veteran. This is going to be the best way to purchase a home with zero down and there is no private mortgage insurance so if you qualify for that type of loan you definitely want to take advantage of it.