Understanding Your
Home Loan Options

Getting approved for a home loan is one of the most stressful parts of buying a home, but it’s easier if you understand what your options are.

Choosing the home loan that is right for you involves making decisions about rate type, government backing opportunities, and loan size. Our goal at Seattle Mortgage Planners is to help you understand and successfully navigate these options. Check out the overview below, then contact us for a personalized consultation.

Choice #1: Rate Type

Fixed-Rate Mortgage Loans

With fixed-rate mortgages (FRMs), your interest rate stays the same throughout your repayment period. This means that your principle and interest payment never changes, even if you choose a 30-year fixed loan.

The predictability of fixed-rate mortgages is most beneficial to those who plan to remain in their new homes long-term. With a fixed-rate mortgage, you’ll also have the option of refinancing down the road to lower your loan’s interest rate.

Adjustable-Rate Mortgage Loans

As you would expect from their name, the interest rates for adjustable-rate mortgages (ARMs) change throughout the repayment period. Some adjustable-rate mortgages are hybrids, meaning that they have a fixed interest rate during an initial period, after which the rate changes on a regular basis. The 5/1 ARM, for example, has a fixed interest rate for the first five years and then begins changing on an annual basis.

ARMs offer the benefit of having lower interest rates than fixed-rate mortgages during their initial fixed periods, which makes them best for home buyers who intend to stay in their homes short-term.

ARMs, however, do not guarantee future refinancing options. While many long-term homebuyers choose ARMs for their lower initial rates with the plan to refinance into a fixed-rate before the loan starts adjusting, this can be risky. A drop in your home’s value or your credit score can affect your ability to switch from the ARM’s unpredictable rates down the line.

Choice #2: Government Backing

Conventional Vs. Government Insured Loans

When finding a home loan, you’ll have a choice between a conventional home loan and a government-insured home loan. The difference between the two is that in the event of borrower default (failure to meet the legal obligations or conditions of a loan), conventional home loans are not insured or guaranteed by the federal government (the government will not take responsibility for the loan on behalf of the lender).

Government-insured loans include Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (USDA) loans.

Your Door to FHA Homeownership logo.
FHA Loans:

The Department of Housing and Urban Development (HUD) manages FHA mortgages, which are open to all types of homebuyers (not just first-time borrowers). In the event of borrower default, the HUD insures the lender against losses. FHA loans are best for homebuyers with little savings or bad credit because borrowers can put as little as 3.5% of the purchase price down. Unfortunately, borrowers still have to pay monthly mortgage insurance with this loan type.

VA | U.S. Department of Veterans Affairs logo.
VA Loans:

Members of the U.S. military and their families can take advantage of the VA’s loan program, which also reimburses lenders for losses due to borrower default. With this program, borrowers can obtain 100% financing to buy a home, meaning that no down payment is necessary.

USDA logo.
USDA Loans:

The USDA’s loan program is available to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing.” To meet eligibility requirements, a borrower’s income must not exceed 115% of the area’s adjusted median income (AMI), which varies by county. Like VA loans, USDA loans require no down payment. USDA loans also have flexible credit requirements, great interest rates, and very low monthly mortgage insurance.

Choice #3: Loan Size

Conforming Loans

Conforming loans “conform” to the pre-established criteria and underwriting guidelines of Fannie Mae and Freddie Mac, government-controlled corporations that purchase loans from lenders and then sell them to investors through Wall Street.

The 2020 conforming loan limit for King, Pierce, and Snohomish counties is $741,750. If you need to borrow a larger sum, you won’t qualify for a conforming loan, and will need a jumbo loan.

Jumbo Loans

Jumbo loans surpass Fannie Mae and Freddie Mac’s conforming loan limits. Jumbo loans often require larger down payments when buying a home, and can have tougher guidelines.

Let Us Get You the Loan You Need

Need help deciding what kind of loan is best for you? Contact us to discuss your options with an expert!