Which type of Mortgage Loan suits You?

Applying for a mortgage loan is the conventional method of becoming a homeowner in the U.S. Buying your own house might seem challenging at first glance, but it is also equally exhilarating. Once you figure out the financing part, it won’t feel like too much work. According to Foreclosure Defense Attorney in New York, if your credit score is thriving and you have organized a budget, half the homework is dealt with. Now all you have to do is learn about the different types of mortgage loans and determine which works best for you:

Conventional Mortgage

Conventional mortgages are conforming loans, i.e. the loan amount cannot exceed a limit set my government agencies in the U.S. This kind of loan can be borrowed to buy your first home, second home, and any tertiary investment property. The overall borrowing cost of conventional loans is lower, as long as you are not paying a very high interest rate. It is ideal to pay 20% to 30% of the estate’s value as down payment. However, it is possible to acquire a loan for as low as 3% of the property value; the catch is that you will have to pay PMI (Private Mortgage Insurance) charges until you have gained 20% equity.

You may only qualify for a conventional mortgage loan if your credit score is 620 or above, and you can offer at least 50% debt to income ratio. Most lenders are not willing to sign up clients if 50% of their total income is not sufficient to cover the mortgage installments. One should consider all the additional expenses that come with property ownership, such as house repairs, furnishing, maintenance, insurance fees, utility bills, etc.

Jumbo Mortgage

Jumbo Mortgage is a lot like Conventional Mortgage, but it is identified as a nonconforming loan, given the bigger funds offered by it. Jumbo loans are typically utilized for purchasing homes in high-end areas, which are priced above $500,000. The minimum down payment required for a jumbo mortgage loan is 10%. Your credit score must not be less than 700 and the debt to income ratio shall be below 45%. Jumbo mortgage is suitable for homebuyers who possess high incomes, excellent FICO scores, and substantial assets. They are not recommended if your job is new or lacks security.

Fixed Rate Mortgage

If you opt for a fixed rate mortgage, your interest rate will remain the same throughout the duration of the loan. Your payments will not fluctuate with respect to inflation or recession in the housing market. Fixed rate mortgages last between 10 to 30 years, and are most suitable for individuals who have long-term settlement plans. Your budget never gets disturbed with this type of loan, yet it takes longer to build home equity. The bigger your installments, the quicker you will acquire complete possession of property. Mortgage plans ranging from ten to fifteen years are most cost effective.

Adjustable Rate Mortgage

As the name suggests, this mortgage system is subject to changing interest rates in the market. You are to pay a fixed interest rate for a few years and then the cost can go up or down, depending on the market’s situation. This type of mortgage loan is risky; you will either save a lot of money or your house may become unaffordable due to unexpected elevation in property value and interest rates. Adjustable rate mortgage is appropriate for people who are looking for a short-term stay, i.e. no more than a few years. These people can benefit from lower rates during the initial years and later switch the investment.

Government Insured Mortgage Government insured loans are available for veterans and people with very low incomes. They aim to help people who not qualify for conventional loans, due to poor credit scores and lack of sufficient down payment. The downside of most government-insured loans is that they come with compulsory insurance premiums and thorough documentation is required for approval. People end up paying a lot more for a property than its actual worth. Conversely, the provisions prescribed for veterans are more flexible and rewarding.

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