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Which Home Loan is the Best?

So you are thinking it is time to buy a house? The two questions most commonly asked are; Which loan program is best?, And when should I apply for a home loan? The answer to these questions depends on your goals and financial situation but hopefully this article will help you find the answer.

Which Loan Program do I Qualify For?

Narrowing down your home loan options is typically the best place to start. Sure there are mortgages that have better rates and terms than others, but if you don’t qualify for them, why waste your time. 
 
Some of the popular loan programs offered in 2019 are FHA, VA, Fannie Mae, Freddie Mac, and USDA home loans. Of all the options, VA is by far the best. VA does not require you to pay mortgage insurance giving you an immediate advantage over other loan programs. In addition, VA has the lowest interest rates available today. But if you are not a veteran, this isn’t a realistic choice. 

 

Conventional Loans

 
A Fannie Mae or Freddie Mac Conventional loan Is the next best loan program with low interest rates and no mortgage insurance (PMI) required if you put 20% down. Conventional loans have low interest rates and extremely low closing costs. You will typically need a credit score of 680 and 20% down to get the best Conventional loan terms. 
 

VA Home Loans

 
If you have less than 20% down and are not a veteran, there are other choices that still have great terms to help you buy your first home. 

 

USDA Home Loans

 
USDA home loans are a great loan option for borrowers that do not have a down payment. The no money down USDA loan has low interest rates and minimal monthly mortgage insurance. You will need to finance the USDA guarantee fee in the loan but with the low rates USDA offers, it shouldn’t increase the mortgage payment more than $30 a month. 
 
The only caveat to USDA is that the home you are buying must be located in a rural area. Don’t lose hope! 97% of America qualifies for USDA. Make sure to check out our “all about USDA loans” and check your area for property Eligibility. 
 

FHA Home Loans

 
FHA is also a great home loan program but falls short of the benefits of USDA, VA, or a 20% down Conventional loan. 
 
The rates are still very competitive and FHA is one of the most popular loan programs in the country. FHA allows for lower credit scores and a down payment as low as $100! The monthly mortgage payment will include a mortgage insurance payment so the total payment might be higher than the other programs. In most cases, FHA is the default loan program because you don’t qualify for the other three. But don’t worry! FHA is still a great loan program. On a comparable $200,000 home, FHA’s mortgage payment might be higher than the other programs by a total of $35 a month. Not so bad for the least attractive loan program.
 

Conventional – Again

 
Conventional….. Again. The funny thing about a Fannie Mae or Freddie Mac Conventional loan is that the terms of the loan can fluctuate drastically. The credit score you have and the down payment available all plays a role in your mortgage term.
 
If you have a small down payment with an average credit score and your mortgage professional recommends a Conventional loan…. RUN! This is the most expensive option.
 
Conventional loans are great but they were not made for a low down payment borrower. You will be required to pay monthly mortgage insurance and a higher interest rate. The Conventional loans are easier to close for the salesperson and this is why some buyers get pushed into the wrong loan. 
 
Conventional loans are not guaranteed by the federal government so Fannie Mae and Freddie Mac take on all the risk. Because of this, they price their interest rates accordingly. You can expect an interest rate .25% higher than the government home loans available with the same financial and credit profile. I am working on a comparison chart to show the differences so stay tuned. 

 

Which Loan Program Can I Afford?

Every applicants financial profile is different. Determining how much home you can afford will come down to an honest conversation with your mortgage professional. Prepare to discuss your current budget, savings, and spending habits. 
 
If you already know how much you “want” to spend, then the answer is easy! Tell your mortgage professional your desired payment and they will provide a price range you should be looking in. Don’t sell yourself short. When you buy a home you get a lot of tax benefits that give back more money every year. It is possible to get up to $100 a month back when you do your taxes at the end of the year. This equates to an extra $24,000 that you can afford.

 

Which Home Loan is Best?

The answer is…. The one that you can afford and lots your financial and credit profile. It is the loan you decide is best. Always view every available loan option and discuss the pros and cons with your mortgage professional. Together you can make a wise financial decision for your future. 
 
When Should I apply for a mortgage? 
 
This question comes up so much I probably hear it 5 times a day. The answer is NOW! If you are reading this article then you probably have some interest in purchasing a home. The first step is always applying for a mortgage. 
 
Why you need to apply now
  • The real estate agent does not want to waste time showing a home to someone that is not approved
  • You don’t know how much you can afford
 
If you were to look at a home and make an offer without approval, you could be denied. Purchasing a home is a lot different than buying a car. The only window shopping you will be able to do is a visit to an open house. 
 
Getting Pre-approved for a home loan is easy. Simply schedule a time to meet your loan professional and gather your income documents for the meeting. Once you have scheduled you appointment, you will receive a welcome call with a list of needed documentation. The meeting should take no longer than 45 minutes and you will walk away ready to buy a home with Confidence. 
 
And if you not approved? Don’t worry. We work hard to put all of our clients in a better financial position. We have helped increase borrowers credit scores, worked with clients through job change, and advised on general financial education. Not just home loans. Make sure you are working with the right mortgage company. 
 

 

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Plattsburgh Mortgage Team

Bank of England Mortgage strives to make homeownership easy.

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