In order to qualify for a USDA Loan, the home to be purchased must be located in an eligible rural area as defined by USDA (it’s important to note that the USDA has rather broad definition of “rural”, and many small towns actually meet the requirement). Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. USDA Loans are mortgages backed by the U.S. In addition, to be considered for a VA loan, a Certificate of Eligibility from the VA must be presented. This may impact the amount that can be borrowed. While there are not loan limits on a VA loan, there is a limit on how much the VA will guarantee. VA Loans include other benefits for veterans as well, such as comparable closing costs, no private mortgage insurance (PMI) or penalties for prepayment, and available counseling to borrowers with financial difficulties or facing default. This one-of-a-kind mortgage program allows those who qualify an opportunity to finance a home with no money down, at competitive rates and no monthly mortgage insurance. VA Loans are available to eligible veterans who wish to buy a home, build a home, or make energy-saving home improvements. Department of Veteran Affairs (VA), and are designed to offer home financing to eligible veterans and surviving spouses. VA Loans are loans guaranteed by the U.S. There are 3 major government programs that insure loans. Government loans will typically have lower down payment options and lower credit score requirements, but feature a lending limit (or cap the amount you can borrow). This reduces the risk for the lender when making a loan.Ī government backed loan can be a great option for borrowers with fewer resources (either for the down payment or repayment). Rather, it promises to repay some or all of the money to the lender in the event that the borrower defaults. The government does not lend money to the borrower. Government-Insured vs Conventional LoansĪ government loan is insured either completely or partially by the U.S. A mortgage banker can discuss each potential scenario with you to help you determine your best course of action. However, if you’re ready to set down roots and are committed to the community, a fixed rate mortgage might be the right fit (especially if you don’t see yourself moving anytime soon). The only risk with an ARM is if rates increase after the initial period, you will have to pay the higher rate.ĭepending on your financial goals and your current financial situation, you may find that an ARM offers lower upfront payments or helps you qualify for a larger loan amount. If you're planning to move within 5 - 7 years, an ARM may be a great option for you. Typically with an ARM you will qualify for a lower interest rate at the beginning of your loan. After that initial 7-year period, the interest rate on your home loan will begin to adjust on an annual basis (every 1 year) based on market rates. For example, with a 7/1 ARM home loan, the interest rate will remain fixed during the initial 7-year period on the life of the loan. Usually, after an initial fixed period, the interest rate on an ARM will adjust on an annual basis. Adjustable Rate MortgageĪn Adjustable Rate Mortgage (commonly referred to as an ARM), is a home loan that the interest payment changes, or adjusts, over the life of the loan. that may change over the life of your loan. *Note: For the sake of a basic definition we are excluding taxes, fees, etc. For example, if you have a 30-year fixed rate mortgage, the amount of your principal and interest payments will remain the same, every month for the entire 30 year period.* With a fixed rate mortgage the amount of your monthly payment will remain the same, year over year, for the entirety of your loan. Fixed Rate MortgageĪ Fixed Rate Mortgage is a home loan that will have the same interest rate for the entire payment period. There are multiple factors to consider, including your current and future financial picture and the length of time you plan to be in the home. When deciding on a loan, one of the first things you will need to assess is whether you would like a fixed rate or adjustable rate mortgage. Armed with this information, you are prepared to have a conversation with your mortgage banker about the best product to meet your financial goals. The actual products may vary depending on the market. In our experience, many borrowers are unaware of the number of loan products and don't know the different types of products and programs that might be available.īelow you’ll find information on the most common product distinctions. When it comes to selecting a mortgage for your new home purchase, there are a wide array of loan options available.
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