Finding the right mortgage program for your budget and financial goals is almost as important as finding your next home. And with several different types of home loans, it is important to understand how each of them differs.
At Penn Street Mortgage, our team of professional mortgage brokers can help you through the home loan process to find the perfect mortgage terms for you. It all starts with understanding your options and making an informed decision that suits your particular needs. We will walk you through everything you need to know, from closing costs to mortgage rates.
Let’s walk through some of the different mortgage programs you can explore during your homebuying process.
Fixed-Rate Mortgage
A fixed-rate mortgage, otherwise known as a conventional mortgage, is one of the most popular home loan types thanks to its straightforward and predictable loan terms. The interest rate remains the same throughout the duration of the loan, which means your monthly payment will not fluctuate. This can help you easily budget and manage your mortgage payments each month without worrying about future rate increases.
Pros:
Predictability: Your monthly mortgage payment stays consistent, making it easier to budget.
Long-term planning: You can plan your finances better in the long run.
Cons:
Higher initial rates: Fixed-rate mortgages often start with higher interest rates compared to other types.
Adjustable-Rate Mortgage (ARM)
On the other hand, an adjustable-rate mortgage (ARM) comes with an interest rate that adjusts over the length of the loan. After the initial introductory period of the loan, you can expect your interest rate to fluctuate and often be higher, meaning your monthly payment will also fluctuate. This can be a good option if current interest rates are high and you do not plan to stay in the home very long.
Pros:
Lower initial rate: ARMs usually offer lower starting interest rates than fixed-rate mortgages.
Potential for reduced payments: If interest rates drop, your payment could decrease.
Cons:
Unpredictability: Monthly payments can fluctuate, leading to potential financial uncertainty.
Increased costs: If interest rates rise significantly, you could end up paying much more over the life of the loan.
Government-Backed Mortgage Loans
Beyond the popular fixed-rate and adjustable-rate mortgages, there is a whole group of government-backed loan options, like Federal Housing Administration (FHA) loans, Veterans Affairs (VA) loans, and United States Department of Agriculture (USDA) loans. These can appeal to first-time homebuyers, veterans or borrowers who meet other eligibility requirements. Some of these loans also have no down payment requirements, which can help borrowers who do not have a lump sum of cash to offer.
If you are interested in applying for one of these, you should talk to a mortgage broker or someone who can confirm loan details, your eligibility and walk through the loan structure.
Pros:
Lower down payments: Many government-backed loans require smaller down payments, making homeownership more accessible.
Flexible credit requirements: These mortgages often have less stringent credit score requirements, opening up homeownership opportunities for more people.
Cons:
Insurance costs: Loans with low down payments often require mortgage insurance, which can add to your monthly payment.
Limited availability: Some government-backed loans, like VA and USDA loans, have specific eligibility requirements.
Jumbo Loans
Jumbo loans are mortgages that are priced higher than the conforming loan limits established by the Federal Housing Financing Agency. Currently, the conforming loan limit in 2024 is around $766,000, so any house priced above that requires a mortgage will fall under the jumbo loan category.
They are considered non-conforming loans because they cannot be bought, guaranteed, or securitized by Fannie Mae or Freddie Mac, and because of this, these loans have a different set of requirements.
Pros:
Purchasing Power: Jumbo loans allow you to finance a more expensive home or property that is above the conventional loan limits.
Loan Consolidation: It is possible to consolidate multiple loans into a single jumbo loan, potentially simplifying your finances.
Cons:
Higher Down Payment: Large loans often require sizable down payments, which could potentially stretch your budget.
Tougher Requirements: Jumbo loans typically have stricter credit and income requirements due to the larger borrowed amounts.
Which loan type is right for you?
As you shop for a new home, finding the right residential mortgage is a major financial decision! Working with local mortgage brokers, like Penn Street Mortgage, can help determine which residential mortgage is right for you.
Mortgage brokers have access to multiple lenders and can help you shop around to find a lender with the most competitive rates available. They can also help you navigate the complex mortgage application process, answering any questions you may have along the way.
By working with a mortgage broker, you can save time and effort searching for the right mortgage since mortgage brokers can gather quotes from multiple banks and credit unions, saving you the hassle of contacting each lender individually. They can also help you understand each loan’s different terms and conditions, allowing you to decide which mortgage is the best fit for your financial situation.
Work with local mortgage brokers at Penn Street Mortgage
Remember, one size does not fit all in the world of mortgages. Your best mortgage fit will depend on your unique financial situation and things like your home purchase price.
At Penn Street Mortgage, we understand that navigating through the complexities and nuances of real estate and mortgage lending can be overwhelming. That is why we are here to help. Our team of experts has a wealth of local knowledge and a wide range of loan products to choose from, allowing us to provide personalized service that caters to your specific needs.
Looking for a new residential mortgage? Reach out to our team and we will pair you with a trusted mortgage broker to help you navigate the home loan process.
