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How to Pick a Home Loan in Summit County

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Congratulations! You’ve decided to buy a home in Summit County. That’s very exciting. iStock_000008326058XSmall 2

I’d love to show you through this entire process so that you can purchase the house of your dreams.

But first things first. Before we find your ultimate home, you need to figure out the type of loan that’s best for you.

This may seem like an overwhelming decision to make. However, you don’t need to be intimidated. By breaking down the types of loans, you’ll see that it’s pretty straightforward. So let me give you some options to consider.

Conventional Loans to Choose From 

It’s natural to feel a bit out of sorts when faced with different kinds of conventional home loans at first.

But it really comes down to two categories: ones with a fixed interest rate and ones with an interest rate that changes over a certain period of time.

Not to complicate matters, but there is also a hybrid, which is a combination of the two types I outlined for you above.

The fixed-rate maintains the exact same interest rate for the entire length of the loan. You never have to worry about rising interest rates as long as this loan is in place.

In contrast, the adjustable-rate mortgage (often called ARM) offers an interest rate that can change over the course of the loan. Your monthly payment will also be different each month. The adjustments to your payment will depend on market conditions. So you might have a higher mortgage bill one month and a lower one the next. You just never know.

As I stated earlier, the hybrid type of home loan combines the fixed and adjustable rate loans into one. This means your loan will start off at a fixed rate for a certain amount of time before it goes into an adjustment phase.

For example, if you want to have a fixed rate for 5 years, you can get what’s called a 5/1 ARM. The interest rate will stay the same for those first 5 years and then it may go up or down after that in accordance with the market.

Pros and Cons of Conventional Loans

Now that you see the different types of conventional home loans out there, you might wonder about the benefits of each one. But you also may be confused about why someone might choose an ARM over a fixed-rate loan since you never know from month to month if the interest rate could skyrocket.

The answer to that question is quite simple. By choosing the hybrid ARM loan, for instance, you get a lower interest rate than a 30-year fixed mortgage. This means you may pay less interest during the fixed portion of the ARM than you would for the more traditional loan.

Also, the hybrid ARM loans are useful if you only see yourself in a certain home for a short period of time. Why pay a higher interest rate on a house that you think you’ll grow out of in 5 years?

A hybrid ARM gives you the opportunity to keep the same interest rate for those first 5 years at a lower cost than a more conventional loan. After 5 years, you can decide if you want to upgrade to a different house or continue with your current loan at the adjustable rate.

You might also decide when the first 5 years of your ARM loan ends that you actually want to stay in your house for a longer period of time. In that case, you can always refinance to get a fixed interest rate once again.

Government Loans

A lot of buyers initially look at the conventional loan route. But with today’s strict lending standards, many people are now finding that government loans suit their needs much better.

The FHA government loan offers flexibility that conventional loans do not. This is because your down payment can be as low as 3.5 percent of the home price and borrowers don’t need a perfect credit score to qualify.

However, the government mortgage insurance is extremely expensive. You’ll have to pay two premiums on this insurance, too. The first is the upfront cost and then there is an annual bill after that. So you’re looking at some significant bills.

Determining the Best Home Loan For You 

Before you choose the best home loan for you, it’s important to be aware of your entire financial situation. This will help you narrow down your choices.

You should also ask yourself a few key questions, including:

  • How much can you put down on your home? If you have enough for a 20 percent down payment, a conventional fixed-rate or ARM mortgage would probably be your best option. You’ll avoid the cost of mortgage insurance, which is a great savings.
  • How high is your credit score? If your credit score is 640 or higher, you’ll most likely qualify for a fixed-rate or ARM mortgage. Anything below 640 may mean a government FHA loan is the type of mortgage you’ll need to acquire.
  • How long do you plan to stay in your new home? If you think you’ll stay in your house for many years, a fixed-rate loan makes the most sense.   

Want More Information?

As you can see, there is a lot to consider when picking the home loan that will be best for your circumstances. But, again, there’s no need to be afraid. Let me help you figure out the right path for you.

Whether you want to sell your current home or you’re interested in buying a new one, I’m available to assist you every step of the way.

Feel free to contact me at your convenience. You can fill out my Information Request Form, send me an email at kelli@kellisells.com or call my office lines. Please know I’m happy to assist you in any of your real estate needs.

 

 

 

 

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