Home Financing

FINANCING OPTIONS

Understanding Loan Options | The Housing Specialists

At The Housing Specialists, we understand that buying a home is one of the greatest investments you will make. Finding the right financing option can be difficult if you don't know the lingo. Below is a list of the most common types of mortgages and terms you need to know!

 

Getting the process started can be intimidating but don't worry, we will be with you every step of the way. Our licensed real estate agents are excited to start helping you.

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COMMON MORTGAGE TYPES

Each type of mortgage loan has pros, cons, and an ideal type of borrower. We want to help you find the right option for you and your situation. Below are 5 of the most common mortgage types, along with the minimum requirements, some pros and cons for each!

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CONVENTIONAL MORTGAGE

There are two types of conventional mortgage loans; conforming and non-conforming loans. 

  • Conforming: Loan amount falls below the maximum limit set by the Federal Housing Finance Agency.

  • Non-conforming: Loans that exceed the maximum limit - see Jumbo Mortgages for more detail.

Usually lenders will require private mortgage insurance (PMI) on these loans when you put less than 20% of the purchase price as a down payment.

Conventional loans are best for someone with strong credit, employment history, a stable income and a down payment of 3%.

PROS

  • Can be used for a primary home, second home or investment property.

  • You can pay as little as 3% down on loans backed by Fannie Mae.

  • Borrowing costs tend to be lower than other mortgage types.

  • You can ask your lender to cancel PMI after you have reached 20% equity.

CONS

  • Minimum FICO score of 620 or higher is usually required.

  • You will likely need PMI if your down payment is less than 20%.

  • You must have a debt-to-income ratio of 45% to 50%.

  • Income verification is required, along with assets, down payment and employment documentation.

FIXED RATE MORTGAGE

Fixed rate loans are just that - fixed! Keeping the same interest rate over the life of the loan offers a mortgage payment that will always stay the same. Fixed loans usually come in terms of 15 years, 20 years and/or 30 years.

A fixed rate mortgage offers stability to monthly payments, this loan would work best for someone who plans to stay in the home for more than 7 to 10 years. 

PROS

  • Monthly principal and interest payments stay the same throughout the life of the loan.

  • You can better budget month to month expenses.

CONS

  • You will pay more in interest with a longer term loan.

  • Interest rates are usually higher than ARM loans.

  • It takes longer to build equity in the home.

ADJUSTABLE RATE MORTGAGE

Adjustable rate mortgages (ARMs) have fluctuating interest rates that can go up or down with the market. Many loans have a fixed rate in the beginning and years later the loan can change to a variable interest rate. 

Looking for an ARM loan with a cap on how much your interest rate or monthly mortgage rate can increase, could really save you the stress of financial trouble in the future.

Adjustable Rate Mortgages are best for someone who is comfortable with the level of risk.

PROS

  • Enjoy a lower fixed rate in the first few years of homeownership.

  • Save a significant amount on interest payments.

CONS

  • Monthly payments could become unaffordable, resulting in loan default.

  • Inconsistency in the market could make it hard to refinance or sell before the loan resets.

GOVERNMENT INSURED MORTGAGE

The government doesn't lend, but there are 3 government agencies that back mortgages! You've probably heard the terms FHA, USDA and VA while looking into purchasing a home. The Federal Housing Administration (FHA), the US Department of Agriculture (USDA) and Department of Veteran Affairs (VA) are the government agencies that back mortgage loans.

  • FHA Loans: Backed by the FHA, these loans help make home ownership possible with smaller down payments and lower credit scores. Mortgage insurance is required for this option.

  • USDA Loans: Help low to middle income borrowers buy homes in rural areas. Must purchase in an eligible area and meet certain income limits to qualify.

  • VA Loans: Provide flexible, low interest mortgages for veterans, servicemembers or surviving spouses. These loans do not require a down payment or PMI, and closing costs are capped.

PROS

  • Can help you get financed when you don't qualify for a conventional loan.

  • A large down payment isn't required.

  • Credit score requirements are more relaxed.

  • Available for first time buyers and repeat buyers.

CONS

  • Mandatory mortgage insurance can't be cancelled on certain loans.

  • You could have higher borrowing costs in total.

  • Documentation is required to confirm eligibility for certain loans.

JUMBO MORTGAGE

Jumbo mortgages are conventional loans that exceed the maximum federal loan limit, making them non-conforming conventional loans. The conforming loan limit in King, Pierce and Snohomish Counties for 2021 is now $776,250. Anything over this amount would be considered a Jumbo Mortgage. Jumbo loans are more common in higher-cost areas, and require more in-depth documentation to qualify.

These loans are best for the more affluent buyer, purchasing a high end home. These buyers should have excellent credit, high income and a good down payment.

PROS

  • More money available to borrow and purchase a home in an expensive area.

  • Interest rates tend to be competitive with other conventional loans.

CONS

  • A down payment of at least 10% to 20% is needed.

  • A credit score of 700 or higher is required.

  • Debt to income ratio can't be over 45%.

  • Documentation of significant assets in cash or savings account is required.

 
 
 
 
 

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FINANCING OPTIONS FOR SENIORS

If you are looking for financing resources for yourself or loved one over 62, there may be more options to consider. Our team of Certified Senior Advisors paired with our licensed real estate agents can help you find the right choice! Review more financing resources for seniors over on Senior Housing Specialists website.