Loan Options that Every Homebuyer Needs to Understand

A LESSON ON MORTGAGES: THE THREE LOAN OPTIONS

by guest writer, Shikma Rubin, loan officer at Tidewater Home Funding

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In the mortgage world, most homebuyers rely on three main types of mortgages. It’s important to understand each one and if you qualify.

Here’s the breakdown:

  1. VA Loan (Veterans Administration) — available to military personnel and veterans.

VA loans are only used for a primary residence. There’s a 0% down payment as long as the value of the house is below a certain threshold (based on the city where it’s located). For most of Hampton Roads, the limit is $458,850. For more on VA Loan limits, read this.

A funding fee, a one-time upfront cost on all VA loans paid directly to the Veterans Administration, can either be financed into your loan or paid at closing. The funding fee is based on the down payment, how many times you’ve used the VA entitlement and the type of veteran you are.

  1. FHA Loan (Federal Housing Administration) — available to the general public. Like VA loans, the loan limit in most of Hampton Roads is $458,850.

FHA loans can only used for a primary residence and require a 3.5% down payment.

FHA loans have a 1.75% (of the loan amount) upfront mortgage premium that can be financed into the loan. It also has monthly mortgage insurance premium (MIP) of 0.85 % (of the loan amount). This MIP remains for the life of the loan. To cancel the premium, the borrower must refinance the loan and have 20% equity in the property.

  1. Conventional Loan — available to the general public.

It can be used for primary residence, second home or investment property.

To avoid private mortgage insurance (what’s PMI?), you need to put down 20%, but make sure you speak to the lender about different program and requirements.

Some lenders will accept as little as a 5% down payment depending on the occupancy, credit scores, and loan amount, etc.

Within the three main types of mortgages, there are two variations you can choose:

  1. Fixed rate mortgage – the rate will not change over the life of the loan.
  2. Adjustable rate mortgage (ARM) – the rate tends to be lower at the start but may go up or down based on market conditions. The rate can very yearly, based on the caps and terms of the loan.

If you have further questions on the types of mortgages and the one that’s right for you, please contact the writer at srubin@tidewaterhomefunding.com. You can also visit her website (shikmarubin.com) for answers to a variety of mortgage topics. Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake, Va (NMLS #1114873) and is one of West Neck Commons Preferred Lenders.