Financing
Are you looking for financing options? Shopping for a mortgage loan can feel both confusing and overwhelming. With so many different lenders on the market, choosing the right one for your specific needs can be a complex endeavor. The most critical factor of the process is deciding on the type of loan, but working with the right lender matters too. The most common mortgage loan is a Conventional Fixed Rate Mortgage loan, which provides a fixed loan amount over the life of the loan. Other types of loans include Interest-Only Mortgage, Adjustable Rate Mortgage (ARM), FHA Loans, VA Loans, Combo Loans, Balloon Loans and Jumbo Loans.
Finding the right loan and lender can save you a lot of money, time, and stress and taking the time to shop around is important! You may also consider engaging a Mortgage Broker, which is a trained professional who acts as an intermediary and brokers mortgage loans on behalf of individuals for a commission rate (usually 1% of the loan amount). In terms of lenders, there are two primary types that most people work with: retail lenders and direct lenders. Other types of lending include wholesale, portfolio, and warehouse, to name a few. Retail lenders are the traditional banks, credit unions and mortgage bankers. On the other hand, Direct Lenders originate their own loans and specialize in mortgage lending whereas Retail Lenders offer other services like auto loans, checking accounts and tend to have stricter underwriting ruled. Direct Lenders tend to have more flexible qualifying guidelines and mostly operate online only.
1. Conventional Fixed-Rate Mortgage Loan
A Conventional Fixed-Rate Mortgage is a loan with a set interest rate and fixed monthly payments for the entire term of the loan, typically 15, 20, or 30 years. The loan amount and interest rate do not change over the life of the loan, offering predictability for borrowers.
2. Interest-Only Mortgage
An Interest-Only Mortgage allows borrowers to pay only the interest on the loan for a specified period (usually 5–10 years). After this period, the loan converts to a traditional mortgage, requiring both principal and interest payments. This can result in lower payments initially but may lead to higher payments later.
3. Adjustable-Rate Mortgage (ARM)
An Adjustable-Rate Mortgage (ARM) has an interest rate that can change periodically based on market conditions. It typically starts with a fixed rate for an initial period (e.g., 5, 7, or 10 years) and then adjusts annually. The changes in the interest rate can affect the monthly payments, potentially making them higher or lower over time.
4. FHA Loans
FHA Loans are mortgages insured by the Federal Housing Administration, designed for low-to-moderate-income borrowers. These loans often require lower down payments and are easier to qualify for compared to conventional loans, making them popular for first-time homebuyers.
5. VA Loans
VA Loans are mortgage loans available to veterans, active-duty service members, and some members of the National Guard and Reserves. These loans are guaranteed by the U.S. Department of Veterans Affairs and often offer benefits such as no down payment and no private mortgage. Also check out our additional resource: "Understanding the VA Loan."