Finding Ridgewood homes for sale is the easy part. Navigating the home loan process is more difficult. There are different types of mortgages for a variety of situations. Which one is best suited to your needs? Here's a comprehensive guide.
Conventional Loan
The most common loan type is obtained through a private lender. Requiring a credit score of at least 620, a down payment typically between 3 and 5 percent of the home's value, and a debt-to-income (DTI) ratio of no more than 50%, these loans are good for first-time homebuyers with good income and stable finances.
Fixed and Adjustable Rate Mortgages
A fixed-rate mortgage locks in an interest rate for your loan's term, regardless of market fluctuations. An adjustable-rate mortgage provides a lower interest rate for the first few years of your term, after which your interest will be periodically adjusted to the current market rate. When interest rates are low, a fixed rate can have long-term benefits. However, an adjustable rate might be preferable if you plan to pay off your loan or sell within the first few years.
FHA Loan
If you have poor credit or other financial issues, you may be able to secure a loan backed by the Federal Housing Administration. With a credit score of 580 or more, you can get a loan with a 3.5% down payment. With a credit score of at least 500, you can get one with a 10% down payment. The loan must be for your primary residence—no rental properties. You also need a DTI of 43% or lower, and you're required to buy mortgage insurance.
VA Loan
For those who have served in the military, a VA loan is backed by the U.S. Department of Veterans Affairs. It typically requires no down payment and no mortgage insurance. Minimum credit score is at the lender's discretion, but is usually around 620. While there is no down payment, borrowers may have to pay a funding fee, a one-time payment of up to 3.6% of the home's value, to lower the cost to the taxpayer of these federally-backed loans.
USDA Loan
If you're planning on moving to certain rural areas of the U.S., consider this loan backed by the Department of Agriculture. There's no down payment and no mortgage insurance, but there are certain upfront and annual fees, typically less than the cost of a conventional loan.
Jumbo Loan
The Federal Housing Finance Agency sets a maximum borrowing limit of $766,550 to $1,149,825. Beyond that, a mortgage can't be guaranteed or insured by Fannie Mae or Freddie Mac, making them a higher risk. To get one requires a minimum credit score of 700, a minimum down payment of 10%, and a DTI no higher than 45%. These jumbo loans are usually used to finance luxury properties or to secure certain tax breaks.
Interest-Only Loan
For a specified time (usually five or 10 years), you pay only the interest on your loan, giving you a lower monthly payment. At the end of this period, the terms are generally adjusted to an adjustable-rate mortgage as you start paying down your principal, and your interest rate is adjusted to reflect the market every year or so.
If you're looking to buy a home, our real estate agents can help you find the right loan and the right lender to fit your situation and help you get the money you need to get the house you want. Contact us to get started.
