If there’s one thing that I’ve seen hold up an otherwise smooth property sale more than just about any other factor, it’s the challenge of aligning financing. A great real estate partner will help you decide between your many options and to secure a pre-approved mortgage to keep your dreams of purchase moving forward smoothly.
I’ll provide an overview of some of the most types of mortgages and loans below. Each comes with some advantages and some drawbacks, so in considering the options, take a look at which fits your personal situation and plans. Take a look, give me a call at 336-575-7249 and let’s discuss how my connections with lenders and over 25 years experience working with clients through their property purchase dreams can make your experience a dream come true.
Option 1: Fixed Rate
Offering the advantage of knowing your monthly payment will remain steady, this is by far the most traditional of loans and provides the lowest risk of all the options. The main drawback is that lenders inch the interest rates up on these loans to lessen their risk, so you may lock-in a rate higher than those offered by other options.
Option 2: Adjustable Rate
If you plan to live in a home for five years or less, this option can save you some dollars through a lower interest rate because the initial arm of the loan (typically five years) locks in a lower rate. The catch comes after that period passes and the interest rate begins to float with the rest of the market, being adjusted as often as once a year. These loans also often come with a pre-payment penalty if you try to refinance to avoid those higher interest rates.
Option 3: FHA/Government Backed
If you have good credit and are either active-duty, reservist, or retired military, these loans offer the best terms by far. Interest rates are usually lower than others on the open market, pre-payment penalties are waived, and there are low or no down payment requirements.
Option 4: Equity or Piggyback
If you can’t afford the typical 20% down payment and want to avoid the PMI (private mortgage insurance) required of traditional mortgages in this situation, leveraging against your existing equity can be a great option. Your risk here comes in the shifting market values of property. If you take out a loan and the market shifts, you can wind up owing more on the loan than your property is worth, exposing you to a risk of foreclosure of you can’t make payments.
Option 5: VA Loans
For those who are currently or have been enlisted in the military, getting a Veterans Administration (VA) backed loan might be a favorable option. Those who qualify are active members of the U.S. military, veterans, and some surviving spouses. These loans do not require a down payment, or private mortgage insurance. They are also unique in that lenders will typically consider lower credit scores. Source these loans through banks and credit unions. Be aware that there is often a one-time fee to obtain the loan that can be as much as 2.15 percent of the loan amount. These loans are only available for a primary residence.
These summaries give you an overview of differences and options and I’d be happy to partner with you as you begin your property buying process. Give me a call at 336-575-7249. In the meantime, for more information and details regarding the process of selecting financing that works best for your situation, you may also want to explore the Consumer Financial Protection Bureau’s website.