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So you're ready to buy a house. You have the exact property in mind. It fits all of your criteria, and you can't wait to move in.
Before you sign the settlement papers though, you will also want to understand what different types of loans may be available. It is important to advocate for yourself through the loan application process so that you get the loan package that is best for you. Below is a short explanation of the most common types of mortgage loans you may qualify for.
Words that get used a lot:
Mortgage - A loan that is attached to a piece of real estate; the property purchased by the buyer is considered as collateral for the loan
Downpayment - A one-time payment towards the loan taken out on the property made by the buyer at the time of settlement
Principal - Payments made towards the original amount
Interest - The fee charged by the lender for the use of the loan; generally expressed in an annual percentage rate (APR)
APR - Annual percentage rate; this is the formula used to calculate the fee that the lender charges for the use of the loan (Ex. On a $100,000 loan with a 5% APR, the lender is charging $5,000 interest per year for the use of loan)
Settlement (Closing) - This is the time when you sign all of your final papers, pay any up-front costs, and ownership of the property transfers from the seller to the buyer
Conventional Fixed Rate Loan
Conventional Fixed Rate Loan
You might think of this as the "default" option. A conventional loan will require a significant downpayment on the property (buyers will pay 10%-20% of the purchase price of the property at the time of settlement).
For a $250,000 property...
Downpayment:
$12,500
Loan Terms:
$237,500 loan (30 year term, 6% interest)
Monthly payment: $1806.22
FHA Loan
FHA Loan
The Federal Housing Authority (FHA) is a government agency that will guarantee qualifying loans, allowing the borrower to pay a significantly smaller downpayment (often 3%-5% of the total loan amount).
For a $250,000 property...
Downpayment:
$8750
Loan Terms:
$241,250 loan (30 year term, 6% interest)
Monthly payment: $1830.27
VA Loan
VA Loan
The U.S. Department of Veterans' Affairs (VA) guarantees mortgage loans for current service-members, veterans, and surviving spouses. VA loans may offer purchase options with downpayments as low as 0%.
For a $250,000 property...
Downpayment:
$0
Loan Terms:
$250,000 loan (30 year term, 6% interest)
Monthly payment: $1886.38
USDA Loan
USDA Loan
The United States Department of Agriculture guarantees loans made in eligible rural districts to home-buyers who meet the income-based eligibility requirements. USDA loans may offer purchase options with a downpayment as low as 0%.
For a $250,000 property...
Downpayment:
$0
Loan Terms:
$250,000 loan (30 year term, 6% interest)
Monthly payment: $1886.38
Adjustable Rate Mortgage (ARM) Loan
Adjustable Rate Mortgage (ARM) Loan
Adjustable rate mortgages have interest rates that may change over the term of the loan. Often, these mortgages come with a fixed rate for a certain number of years; after the introductory rate period ends, the rate will be adjusted. Often, these loans have "mortgage caps" that prevent the rate from changing more than a certain percentage in any given year.
Typical Products:
5/1 ARM Loan - There is a fixed rate for the first 5 years, after which, the rate will be adjusted each year
3/1 ARM Loan - There is a fixed rate for the first 3 years, after which, the rate will be adjusted each year
Downpayment requirements and monthly mortgage payments will vary according to the specific terms of the loan, and the interest rate may vary over the life of the loan; use the calculator button below to explore the numbers
Speak with a Lender!
Speak with a Lender!
If you are ready to apply for a loan or get pre-approved to make a purchase offer on a property, contact one of our local lenders!
Primary Residential Mortgage Inc.
Primary Residential Mortgage Inc.
301-737-0001
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