Which loan is right for me?

After selecting the perfect home it is important to choose a home loan that will best suit your needs. To determine which mortgage program is right for you begin by asking yourself the following questions:

  • How much of a down payment can I afford?
  • How much of a mortgage payment can I afford on a monthly basis?
  • Do I want low payments for a long term or higher payments for a shorter term?
  • Do I want consistent monthly payments?
  • How many years do I want to pay for my home?
  • How long do I intend to own this home?
  • Can I pay more toward my principal balance if my cash flow increases?
  • Will my finances change over the next few years?

Your answers to these questions will help your lender compare different loan options with you and advise the loan that will fit your situation best. To help you understand the basics of the most common loan types, we have provided you with a general overview.

  • FHA Mortgages
    • Features
      • FHA mortgages are insured by the Federal Housing Administration.
    • Advantages
      • FHA mortgages allow homebuyers to put as little as a 3.5% down payment on a home.
      • These loans also allow the down payment or closing costs to be paid by a gift.
  • VA Mortgages
    • Features
      • VA mortgages are insured by the U.S. Department of Veteran's Affairs (VA).
      • If you are currently in the United States military, or if you have ever served in U.S. armed forces, you may be eligible to get a loan guaranteed by the Veterans Administration (VA).
    • Advantages
      • VA mortgages allow you to purchase a home with little or no down payment.
  • Fixed Rate Mortgages
    • Features
      • The interest rate on a fixed rate mortgage remains the same over the life of the loan, which typically spans 15 or 30 years.
      • Your monthly principal and interest payment will never change throughout the life of the loan.
      • Fixed rate mortgages are especially designed for those who expect to remain in their homes for a long period of time.
    • Advantages
      • Low or no down payment programs are available.
      • Your mortgage payment is not affected if interest rates go up.
      • Your monthly payments remain constant, so you can easily budget your finances.
    • Disadvantages
      • Your mortgage payment is not affected if interest rates go down.
  • Adjustable Rate Mortgages
    • Features
      • The interest rate fluctuates over the term of the loan.
      • Interest rate and payment calculations are based upon an index and margin of the mortgage. The index is a base rate that the lender then adds the margin at each adjustment period to determine a new interest rate. Be sure to check the type of index your mortgage lender is using, because some fluctuate more than others.
      • ARMs can make sense if you know you will be in your home for less than the term of the mortgage or if you plan on refinancing in the relatively near future. This allows you to take advantage of the lower initial rates and payments at the early part of the loan before you see any significant increases.
    • Traditional ARM
      • Traditional ARMs adjusts for the same periods throughout the life of the loan.
      • A traditional ARM usually offers a lower interest rate than a hybrid ARM but it adjusts more quickly.
    • Hybrid ARM
      • A Hybrid ARM has an initial “fixed” period of 3, 5, 7 or even 10 years, during which time the interest rate does not change. After the initial fixed period is over, the interest will adjusted periodically to follow the market.
    • Advantages
      • ARMs generally offer lower initial interest rates than comparable fixed rate mortgages, allowing for a lower monthly payment and increasing your purchasing power.
      • It may be easier to qualify for an ARM than a fixed rate mortgage because the interest rate and payment amount are lower.
      • The interest rate you pay will generally drop if current interest rates go down.
    • Disadvantages
      • If interest rates increase then your payment will also increase.
      • Large interest rate increases could make your house unaffordable.
  • Balloon Mortgage
    • Features
      • Principal and interest payments remain constant for the term of a balloon mortgage, which is usually five to seven years, although principal and interest are amortized over 30 years.
      • If you know that you will own your new home for less than the term of the mortgage, this may be a product you should consider.
    • Advantages
      • The initial interest rate is generally lower than that of a fixed rate mortgage.
      • Balloon mortgages are typically offered at lower interest rates than other fixed products, making them more affordable.
      • It may be easier to qualify for a balloon mortgage than a traditional 30 year fixed mortgage because of the lower interest rate.
    • Disadvantages
      • At the end of the five to seven years, you must pay off the mortgage. This usually means you must refinance or sell your home.
      • If you have to refinance in order to pay off your mortgage, your interest rate and your payment could be higher depending on current market rates.