Most people need a mortgage when buying a home in Milwaukee. Did you know there are several types of mortgages out there?
While it’s exciting to buy a new home, dealing with a financial aspect of everything can be exhausting. Still, if you know some information and details, this doesn’t have to be as overwhelming. For example, did you know that there is not one, not two, but five types of mortgages out there? Here’s how to know which mortgage works the best for you.
One the most common types of mortgages are conventional mortgages. This is a type of a home loan that federal government doesn’t insure. There are two types of this loan: conforming and non-conforming loans. The amount of conforming loans falls within the FHFA’s maximum limits, while the non-conforming loans don’t follow these guidelines. Most lenders require a private mortgage insurance if you take out conventional loans, especially when you pay less than a 20% on a down payment. These loans can be used on almost all kinds of properties, and overall costs are usually lower than on other types of mortgages, despite high interest rates. However, they require a good credit score and a good debt-to-income ratio, and can be hard to get. Still, if you’re someone with a stable income and a good employment history, as well as a strong credit, conventional mortgages might be a great choice for you.
Jumbo mortgages are a sub-type of conventional mortgages with non-conforming limits. In other words, their limits are higher than the federal loan regulations. Because of this, people mostly use this mortgage in high-cost areas, where other types of mortgages wouldn’t cover the costs. They usually come at affordable interest rates, but require a large down payment, a very high FICO score and you have to provide in-depth documentation. Also, you mustn’t have a debt-to-income ratio higher than 45%. Still, they are a great option for borrowers looking to purchase luxurious homes. Keep in mind that the amount of required financing determines whether or not you need a jumbo mortgage or not. The price of the home doesn’t impact this too much.
While the US government isn’t an official mortgage lender, it can help American citizens become homeowners. There are three government agencies that back mortgages:
- The Federal Housing Administration (FHA loans)
- The US Department of Agriculture (USDA loans)
- The US Department of Veterans Affairs (VA loans)
FHA loans are a good choice for borrowers who don’t have pristine credit or can’t afford a high down payment. Under certain conditions, you could get a loan even if your credit score is as low as 500. However, these types of loan require two mortgage insurance premiums, so your overall cost of mortgage can be higher.
USDA loans help low income borrowers purchase homes in rural areas. Some of them don’t even require a down payment.
VA loans provide flexible mortgages with low interest rates for all members of the US military, whether active or veterans, and for their families. These types of mortgages don’t require a private mortgage insurance or a down payment, but they have a funding fee which can be used as a part of the loan or paid upfront during the closing of the sale.
All of these loans help you purchase a house when you can’t qualify for a conventional loan, don’t require a pristine credit score or large down payment, and are a great choice for a first time buyer. However, most have mandatory premiums and the overall costs could end up being much higher than on a regular mortgage. Also, not everyone is eligible for these types of mortgages.
Fixed rate mortgages have the same interest rate throughout the life of the loan. In other words, your monthly payment stays the same, no matter how much time has passed. These loans usually come in terms of 15, 20, or 30 years. They are a great choice for borrowers who love to plan out their finances on time. However, chances are you’ll end with a higher interest, and it does take a while before you have any equity on your home. Still, if you plan to stay in your home for ten or more years, this can be a great option.
Unlike fixed-rate mortgages, adjustable-rate mortgages have interest rates that change with the market. In fact, most types of mortgages are a mixture of fixed-rate and adjustable-rate. The interest rate will stay fixed for the first few years before it changes to an adjustable rate. When you opt for this mortgage, you’ll have a lower fixed-rate in the first few years of a home ownership, which will help you save money. However, as the time passes, your mortgage rate might become unaffordable, and as the home values might drop in the following years, you may not be able to refinance or sell your Milwaukee house before the debt is paid.
What if I Can’t Pay My Mortgage in Time?
If you choose the wrong type of mortgage and now you can’t pay it in time, don’t worry, you can always sell your home to a local direct buyer, such as Sparks Property Investors LLC. You may wish to consider the time and money-saving benefits of a direct sale of your property, which more often than not, takes place as an “as is” transaction. It is important to consider the advantages of working with a direct buyer, especially when you have debt looming over your head and you get nearer to the deadline of foreclosure every day. You can be ahead of the lender and the foreclosure process by selling directly before it is too late. No interruptions in your life from showings, no pressure to keep everything spotless at all times. You will not be left under the gun by working with inexperienced buyers, backing out, and failing to close. None of the expenses of listing a home will come into play, including no real estate commissions coming off the top at closing.