Buying a home involves more than just choosing a house. Not only do you have choices to make with real estate agents, neighborhoods, lenders, and houses, you also have several different types of mortgage options. Certain mortgage loans will better suit your circumstances, such as where you live, how long you plan to live there, your loan amount, available down payment, and other variables. The type of mortgage you choose could bring you significant savings on your down payment, fees, and interest. Learn more about the different types of mortgages to help make an informed decision about one of the largest purchases you’ll make.
Below are the several mortgage products SD Capital Funding d/b/a LemonBrew Lending offers.
Conventional Types of Mortgages
Conventional mortgages are not insured by the federal government. Conventional loans are ideal for someone who has a high credit score, lower debt-to-income ratio, verifiable employment history, and stable income. Even though conventional loans have slightly tighter guidelines, a 20 percent down payment is not a requirement. Though you can find a conventional loan that does not require a 20 percent down payment, most lenders will require private mortgage insurance (PMI) until your equity reaches the 20 percent level.
Conventional loan interest rates are extremely dependent upon credit score, down payment, and property type. With a conventional mortgage the interest rate can be either adjustable or fixed.
Adjustable Rate (ARM)
An adjustable rate mortgage (ARM) is better suited for home buyers with poorer credit who cannot get a good rate on a fixed-rate loan. The interest rate typically is lower for the first five years, after which the rate annually adjusts to current interest rates. If interest rates increase, so do the monthly payments.
This type of mortgage also suits home buyers who intend to stay in the home only for a few years. They lock in a lower rate for the first years of the loan, and then they move before the rate adjusts.
- Minimum credit score: 620 or higher
- Minimum down payment: 3 percent
- Loan term: 10, 15, 20, 25, or 30 years
Fixed Rate
With a fixed rate mortgage, the interest rate and monthly payment remain the same for the duration of the loan. This type of mortgage is better suited for home buyers who appreciate consistency and who intend to live in the house for many years.
- Minimum credit score: 620 or higher
- Minimum down payment: 3 percent
- Loan term: 10, 15, 20, 25, or 30 years
Government-Backed Types of Mortgages
Though the government is not a mortgage lender directly, the federal government operates several programs that assist Americans of more moderate means with homeownership. Three agencies insure these loans, mitigating the risk to the private lender and encouraging financial institutions to work with higher risk applicants.
FHA Loans
Federal Housing Administration (FHA) loans are ideal for someone who has less than perfect credit, a low down payment, or higher debt-to-income ratio. FHA loans allow for more flexibility in qualifying, but also charge an insurance premium. The mortgage insurance premium that is charged at closing, known as the Upfront MIP or UFMIP, is 1.75 percent of the loan amount and can be added to your loan balance.
The FHA offers several types of mortgages, including one that combines the costs of energy efficient upgrades into the loan.
- Minimum credit score: 580
- Minimum down payment: 3.5 percent
- Loan term: 15, 25, or 30 years
- Interest rate: fixed
FHA 203(K) Loans
FHA 203(k) rehabilitation loans are ideal for someone who is looking for a “fixer-upper.” FHA 203(k) loans allow for all rehab repair costs to be included in the loan amount. The program does require the work to be performed by a licensed general contractor and the use of a certified consultant. The closing timeline can take up to 6 months, but up to 6 months of mortgage payments can also be added to the loan amount.
- Minimum credit score: 580
- Minimum down payment: none required
- Loan term: 15 or 30 years
- Interest rate: fixed
VA Loans
Backed by the U.S. Department of Veteran Affairs, VA loans are mortgages offered to active members of the military, veterans, or eligible surviving spouses. Qualified candidates can purchase a home with no down payment. Other benefits are VA loans do not require private mortgage insurance (PMI), and the actual closing costs are limited by the VA.
- Minimum credit score: 580
- Minimum down payment: none required
- Loan term: 15, 25, or 30 years
- Interest rate: fixed
USDA Loans
USDA loans are offered through a program backed by the U.S. Department of Agriculture (USDA) to benefit lower- and moderate-income families and increase home ownership in America’s rural communities. To be eligible for a USDA loan, household income must meet certain guidelines, and the property must be located in an eligible rural area.
- Minimum credit score: 580
- Minimum down payment: 3 percent
- Loan term: 30 years
- Interest rate: fixed or ARM
Choosing the Right Mortgage Broker
The lender with the lowest rate may not have access to the best product that suits your needs and helps you meet your goals. Lenders with ultra-low rates often skimp on service and have teams with little to no product knowledge. For most clients, it is better to use a mortgage broker who accesses multiple lenders, multiple products, and focuses on serving your needs and goals. One such broker is SD Capital Funding d/b/a LemonBrew Lending, who offer a streamlined mortgage lending process and competitive rates both for first-time home buyers and current owners who want to refinance.