If you’re in the market for a new home in St. Louis, you’re in luck. The residential housing market is strong right now, and buyers are in a good position to get the home they have their eye on – if they can afford it. For a buyer to have a shot at the home of their dreams, they have to have cash on hand for an earnest deposit and a down payment. They also have to be approved for a mortgage. A St. Louis mortgage company like Homestead Financial Mortgage can help you get the edge over other potential homeowners. Sellers sell to the person they know can pay for the home. If you’re starting to search for home loans, you need to be prepared.
Sorting through the Confusion
There are several types of home loans available to potential homeowners. Not all of them fit every buyer’s situation, and expert St. Louis mortgage lenders can help you sift through the options. Before you start looking for your new home in earnest, it’s important to understand the basic types of mortgages so that you can determine the option that will work best in your case.
There are eight basic types of home loans. An overview of each follows. Getting familiar with these loans and how they work will give you a better idea of what to expect when you are ready to apply for a mortgage.
Look at the Basics First
Before we go into the types of mortgage loans, it’s crucial for you to understand a little more about how your mortgage loan payments are calculated. Two components that directly impact this number are the term and the interest rate.
Term. This is the length over which you’ll be paying off the money that you borrow to purchase your new home. Thirty years is the most common term, but many homeowners are opting for shorter terms when they can afford it. The shorter the term, the higher the payment is likely to be; however, you’ll pay your home off faster and pay less over the long run with a shorter-term mortgage.
Interest rate. Interest is what you pay the bank for the use of their money. The interest rate on a mortgage can be either fixed or variable. A fixed interest rate is just that: fixed. It’s the same amount every month; it’s easy to budget for. A fixed rate doesn’t deliver any surprises. A variable-rate mortgage (also known as an adjustable-rate mortgage) has an interest that varies from month to month or year to year. A variable-rate mortgage looks appealing on the front-end because the interest rate is usually lower in the beginning years, resulting in a lower monthly payment for the homeowner. Over time, however, the rate adjusts upward, impacting the monthly payment amount. There are good reasons for getting a variable rate mortgage. A St. Louis mortgage expert can help you determine whether this is the right option for you.
Types of Mortgage Loans
Below are the most common types of mortgage loans.
Conventional loan. A conventional loan is one that meets all of Fannie Mae’s lending requirements (also called underwriting guidelines). Fannie Mae, which stands for the Federal National Mortgage Association, is a governmental entity assigned to oversee the mortgage lending process. The government does not secure a conventional loan, and the homeowner must pay private mortgage insurance, which protects the lender if the loan goes into default.
Unconventional loan. Unconventional loans do not adhere to Fannie Mae guidelines. Unconventional mortgages include subprime mortgages and other government-insured loan programs. The following fall under the unconventional loan category:
Subprime mortgage. A subprime mortgage is designed to help those who have challenges qualifying for a conventional mortgage. Situations such as divorce, unemployment, or medical costs can prevent a homeowner from meeting Fannie Mae guidelines. In this situation, a subprime loan may seem like the best bet, but beware. These loans often come with high interest rates and prepayment penalties because of the risk to the lender.
FHA loan. FHA (Federal Housing Administration) loans are often an appropriate solution for first-time St. Louis mortgage applicants because these loans can be had for a down payment of as little as 3.5%. They also have lower requirements when it comes to a qualifying credit score. That catch here, though, is that homeowners will pay a mortgage insurance premium for the life of the loan.
VA loan. VA loans allow military veterans to purchase a home with virtually no down payment or mortgage insurance. These loans come with an origination fee that’s based on several things: whether it’s your first VA loan, the amount of money borrowed, your military status, and the down payment amount. Take these into consideration before going this route because the origination fee can add a sizable amount to the loan. Also, if the housing market changes for the worse, you could be left making payments on a house that has decreased in market value.
USDA/RHS loans. People who live in rural areas and can demonstrate a need for financial assistance may be a candidate for a USDA loan. This program, managed by the Rural Housing Service, allows qualifying rural residents to purchase a house with no down payment at below-market interest rates.
Homestead Financial is Your St. Louis Mortgage Company
The mortgage programs above are the most common, but there are many other loan options available. A professional St Louis mortgage loan officer can help you sort through your options and choose the one that works best for your situation.
Homestead Financial Mortgage is different from other St. Louis mortgage lenders. We take pride in offering exceptional mortgage loan services to our customers, walking you through the entire home purchase process from start to finish. Our mortgage professionals are highly qualified and are happy to answer any questions you have regarding homeownership. Give us a call today to learn more, or visit one of our branches to get started. You’ll find us in St. Louis, Missouri; Overland Park, Kansas; and Godfrey and Glen Carbon, Illinois.