The current state of the economy will have lasting effects on the property market. This can either be good or bad, depending on where you want to live. But even without the global shutdown, purchasing a house entirely in cash is difficult. This is why several people choose to apply for a mortgage. With this loan instrument, you can pay for your home over a long period. This reduces the pressure and stress that upfront payments have. However, for this to be successful, you will have to choose the right mortgage for you.
A mortgage is made up of two components: the principal and the interest. The principal is the loan amount; while the interest is the percentage you owe the lender. While these make up the foundation for all mortgages, the amount, payment schedule, and payment method vary depending on what type of mortgage you choose. Familiarize yourself with the different options to make sure you choose the best one for your financial situation.
Conventional Mortgage Loan
A conventional mortgage loan is backed by government-sponsored enterprises. The requirements for this loan are (1) good credit history, (2) stable employment and income, and (3) the ability to make a 3% down payment. If you are unsure of the last item, you can use a mortgage payment calculator to determine the exact amount.
Conforming Mortgage Loan
Unlike the previous option, a conforming mortgage loan is backed by the federal government. They set maximum loan limits based on the geographic location of the property. In high-cost areas, such as New York City, the maximum loan limit can go as high as 115% more than the baseline limit.
Nonconforming Mortgage Loan
A non-conforming mortgage loan does not meet the guidelines established by government-sponsored enterprises. This type of loan doesn’t have a maximum loan amount, down payment requirements, or even credit requirements. Although this is beneficial to those with bad credit history, you will likely be stuck paying high-interest rates.
Government-insured VA Loans
The U.S. Department of Veterans Affairs provides qualified active service members, veterans, and their spouses with homebuyer loans. If you are qualified for this, you acquire several benefits. These include a cap on closing costs, no broker fees, no funding fees, and no required down payment.
Government-insured USDA Loans
Much like the previous option, the U.S. Department of Agriculture provides loans to those living in rural areas. This type of mortgage loan is often directed towards low-income buyers who are looking at properties that meet the USDA’s eligibility rules.
Government-insured FHA Loans
The Federal Housing Administration created this mortgage loan for first-time homebuyers who fall under the low-to-medium income bracket. This loan type allows you to put down as little as 3.5% for the down payment. If you choose this, you will only have to pay an upfront and annual mortgage insurance premium for the loan’s lifetime.
Everyone should have the opportunity to live in a home that they own. With the right mortgage loan, you get the ability to purchase a house for you and your family to grow in.