There are several different types of home loans for both new home buyers and current homeowners. The most appropriate option will depend on your situation and your goals for the mortgage. The Loan Options Table here offers a quick look at the basics of each loan type then additional details for each are provided below.
Loan options can be confusing, so I’m happy to answer any questions you have and to provide guidance as you make a decision. Together, we will find the perfect loan option for you.
ADJUSTABLE-RATE MORTGAGE
Flexibility for Homeowners
An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment.
Adjustable-Rate Mortgage Highlights
An ARM might be the right option for you if you plan on moving within 7 years since they feature lower introductory interest rates. If interest rates are expected to fall, a homeowner could potentially reduce their monthly payments with the lowered interest rates. Highlights of an adjustable-rate mortgage include:
- Lower initial monthly payments
- Possibility to qualify for higher loan amounts
- Rates and Payments may decrease based on the index rate
CONVENTIONAL LOANS
Lower Rates with More Flexibility
A conventional mortgage refers to any loan that is not insured or guaranteed by the federal government, as opposed to government-insured loans including Federal Housing Administration (FHA), U.S. Department of Veteran Affairs (VA) and U.S. Department of Agriculture (USDA). Conventional mortgages (whether conforming or not) typically have a slightly higher down payment than government loans; however, this loan option normally provides more flexibility with fewer restrictions.
Conventional Highlights
If you have good credit and stable income, a conventional loan might be the right option for you since it offers:
- Lower interest rates for borrowers with good credit
- Flexible mortgage insuranceoptions
- Fewer penalties and fees
- Flexible loan terms
Conventional Loan Programs
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-Rate Mortgage
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. Plus, you have the option of selecting a 10, 15, 20, 25 or 30-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
Jumbo Mortgage
A jumbo loan, or non-conforming mortgage, allows you to purchase more expensive homes with a loan amount above the conforming limit set by the Federal Housing Finance Agency. In most areas of the country, the conventional conforming loan limit is $424,100; however, the limit is $625,500 in higher cost areas. If you have a low debt-to-income (DTI) ratio and a higher credit score, but you don’t have enough funds to bring the loan amount under the conforming limit, a jumbo loan might be the right option for you.
FHA LOANS
Opening the Doors to Homeownership
Home loans insured by the Federal Housing Administration (FHA) can make it easier for you to qualify to purchase or refinance a home. This loan option offers flexible qualification guidelines to help people who may not qualify for a conventional mortgage.
FHA Loan Highlights
FHA loans are widely used by first-time homebuyers and people with low-to-moderate incomes since this government-insured mortgage features:
- Low down payments
- Flexible income and credit requirements
- Fixed- and adjustable-rate mortgages
- Loans for 1-4 unit properties and condos may be available
- Down payment funds can be a gift from a relative or employer*
- Home sellers can contribute up to 6% of the closing costs
*Subject to underwriting review and approval
FHA Loan Programs
Adjustable-Rate Mortgage
FHA’s adjustable-rate mortgage (ARM) insures home purchases or refinances with rates that can change after the initial fixed-rate period. Depending on market fluctuations after this initial fixed-rate period, your monthly payments could change due to rates increasing or decreasing. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-Rate Mortgage
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. With FHA loans, you can select a 30-, 20- or 15-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
Streamlined Refinance
If you currently have an FHA mortgage, we may be able to help you reduce your interest rate and lower your monthly mortgage payments with an FHA streamlined refinance. Plus, a streamlined refinance requires limited borrower credit documentation and underwriting for an even easier process. This may be the right solution if you want to convert your ARM to a fixed-rate loan.
FIXED-RATE MORTGAGE
Secure Your Financial Future
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. Plus, you have the flexibility of selecting a 10, 15, 20, 25 or 30-year term (depending on the loan type). The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for a new home if you sell your existing home or take out equity with a cash-out refinance.
Fixed-Rate Mortgage Highlights
If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you since this option features:
- Consistent monthly payments and interest rates
- Protection from rising interest rates
- Mortgage tax interest deduction*
- Different term length options
*This does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
JUMBO LOANS
Think BIG with a Jumbo Loan
A jumbo loan, or non-conforming mortgage, allows you to purchase more expensive homes with a loan amount above the conforming limit set by the Federal Housing Finance Agency. In most areas of the country, the conventional conforming loan limit is $424,100; however, the limit is $625,500 in higher cost areas.
Jumbo Loan Highlights
If you have a low debt-to-income (DTI) ratio and a higher credit score, but you don’t have enough funds to bring the loan amount under the conforming limit, a jumbo loan might be the right option for you. Highlights of non-conforming loans include:
- Finance a home over the maximum loan amount established by the Federal Housing Finance Agency
- Higher purchase limits allow borrower to purchase more house
- Convenience of one loan for the entire loan amount
- Primary residence, second home or investment property
- Fixed-rate or adjustable-rate mortgages (ARM)
USDA/RURAL DEVELOPMENT LOANS
Live Comfortably Outside of City Limits
Home loans guaranteed by the United States Department of Agriculture (USDA) provide affordable financing options for properties located in designated small towns, suburbs and exurbs. This program helps eligible low- to moderate-income families achieve homeownership by offering a no down payment option.
USDA Loan Highlights
With flexible requirements, USDA loans feature:
- 100% financing + required guarantee fee = 102% of the appraised value
- Low FICO score requirements
- Low interest rates
- Low closing costs
- Gift funds can be used for closing costs
- 30-year, fixed-rate mortgage
USDA Loan Eligibility
Eligibility is based on the property size, location and condition along with income and other qualifying factors. Some of these requirements include:
- Property must be located in a USDA designated rural area
- Maximum loan limits vary based on location
- Household members can have a total income of up to 115% of the medial income for the area
- Household must be able to afford the mortgage payment, including property taxes, homeowners insurance and the annual guarantee fee payable on a monthly basis
VA LOANS
Welcoming Veterans Home
Here at Fairway, we are proud to help our Service Members and Veterans achieve the American Dream of homeownership. Home loans backed by the Department of Veterans Affairs (VA) provide affordable home financing options for eligible Service Members, Veterans and surviving spouses.
VA Loan Highlights
Since VA loans often require no down payment* with lower closing costs, you can help keep your savings secure. VA loans also feature:
- No prepayment penalties
- No private mortgage insurance(PMI)
- 100% financing with full VA entitlement*
- Fixed- and adjustable-rate mortgages
- VA financing fees can be “rolled” into the loan amount
- Variety of eligible property types, including townhomes and VA-approved condos
*A down payment is required if the borrower does not have full VA entitlement, or if the loan amount is greater than $424,100
VA Loan Eligibility
In order to be eligible for a VA loan, you must first obtain a valid Certificate of Eligibility (COE). Your COE is based on length of service or service commitment, duty status and character of service.
VA Loan Programs
Adjustable-Rate Mortgage
If you are currently serving in the military with a chance of relocating in the next few years, the flexibility of an adjustable-rate mortgage (ARM) could be the right option for you. ARMs offer lower introductory interest rates that can change after the initial fixed-rate period. Depending on market fluctuations after this initial fixed-rate period, your monthly payments could change due to rates increasing or decreasing.
Fixed-Rate Mortgage
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. You can select a 30- or 15-year loan term. The main difference is the 15-year option has higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
Cash-Out Refinance
If you’re already a homeowner, a cash-out refinance may help you pay for major expenses like college tuition, debt or home improvements. This option allows you to take cash out of your home equity by replacing your current mortgage with a new loan that is more than the amount owed. You can also refinance a non-VA loan into a VA loan with a cash-out refinance.
Interest Rate Reduction Refinance Loan
An interest rate reduction refinance loan (IRRRL) may help lower your interest rate and reduce your monthly payments by refinancing your existing VA loan. You can also refinance an adjustable-rate mortgage (ARM) into a fixed-rate mortgage with this option. However, you cannot receive cash from loan proceeds with an IRRRL.