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. This page provides an overview of everything you need to know to best decide which home loan is right for you. For any questions or concerns you have, contact Seattle Mortgage Planners today.
Rate Type: Fixed Rate vs. Adjustable Rate
The first home loan decision you will make is whether you want a home loan with a fixed interest rate or an adjustable interest rate.
Fixed-Rate Mortgage Loans
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
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 home buyers 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.
Government Backing: Conventional vs. Government-Insured
You’ll also have to choose 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.
FHA loans are best for home buyers 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.
With this program, borrowers can obtain 100% financing to buy a home, meaning that no down payment is necessary.
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.
Loan Size: Conforming vs. Jumbo
Your last decision has to do with the amount that you want to borrow. Depending on the size of that sum, you will choose either a conforming loan or a jumbo loan.
The conforming loan limit for King, Pierce, and Snohomish counties is currently $726,525. If you need to borrow a larger sum, you won’t qualify for a conforming loan.
LET SEATTLE MORTGAGE PLANNERS GET YOU THE LOAN YOU NEED!
Still need help deciding what kind of loan is best for you? Contact Seattle Mortgage Planners today to schedule a consultation to discuss these considerations and the best home loan options for you!