One of the first steps when buying a home is determining what type of mortgage you’ll be taking out for the purchase. This is a major financial decision that you should think through carefully. Familiarize yourself with a few of the most common types of real estate mortgages to determine whether they may be right for you.
A Guide to Real Estate Mortgage Loans
1. Conventional vs. Government-Insured
A conventional mortgage can be used for a primary home, a vacation property, or investment real estate. They require a minimum FICO score of 620. Interest rates can be higher, but the overall costs tend to be relatively low. This is a good choice for those with strong credit, a down payment of at least 3% and a stable income.
A government-insured loan is guaranteed by the federal government. There are three types: FHA, VA, and USDA. FHA loans are available to everyone but do require you to purchase mortgage insurance. VA loans are designed for military service members and their families, and USDA loans are for rural residents with a steady and modest income.
2. Conforming vs. Jumbo
A conforming loan meets the underwriting guidelines of Fannie Mae and Freddie Mac. This means that they have size limits. They are a good choice for those who want a smaller mortgage payment and can’t put down a large portion of their loan.
Jumbo loans are non-conforming, so they are larger than those guidelines. They allow you to borrow more money to buy a more expensive home. Because they are a higher risk for the lender, they will require a higher FICO score—usually over 700—and a down payment between 10 and 20%.
3. Fixed vs. Adjustable Rate
A fixed-rate mortgage means you’ll choose your interest rate when you take out the loan, and it will remain the same through to the end. This is a good option if mortgage rates are low and you want to lock them in.
An adjustable-rate mortgage (ARM) means that the interest rate will change over the course of the repayment period. You’ll usually determine a fixed-rate period, and after that, the rate will adjust routinely based on the current market.
When you’re ready to start looking at properties, schedule an appointment with realtor® Jim Haldeman at RE/MAX Home & Hills Realty in Black River Falls, WI. This team knows the local home buying market well and can help you find a property to suit your budget and needs. They’ll make the process as fun and rewarding as possible. Contact them online or at (715) 284-0610 to schedule a real estate consultation.