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Types of mortgages and how to choose a mortgage lender

Types of Mortgages

If you are ready to purchase a home in Henderson, Las Vegas, or Boulder City, the first thing you may want to consider is mortgage options. There are a few types for mortgages that are the most popular. These mortgages include VA Loans, FHA Loans, Conventional Loans, and Jumbo Loans. Not all types of mortgages are right for you, you may qualify to have the 4 most common loans above, or just 1 of them. If you do qualify for all the above stated loans, one is sure to fit your finances best.

Types of Mortgage: Conventional Loans

Conventional loans are probably what most people think of when thinking about different types of mortgages. These loans are not backed by a government agency, such as the Federal Housing Administration. The minimum down payment amount for a conventional loan is 5%, but there are down payment assistant programs that may help you reach the 5%.

Conventional loans are one of the most demanding as far as credit goes, but this means that they also offer lower interest rates. Another benefit of conventional loans is that you only have to pay PMI, or private mortgage insurance, till you’ve paid off 20% of the home’s value. This can save you a few hundred a year depending on the price of your home.

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FHA Loans

FHA Loans are named after the Federal Housing Administration which guarantee these types of mortgages. How these loans came into existence is that the FHA found that conventional loans were hard for many people to qualify for and many did not have the 5% or more required for a down payment. The government then decided to back, or guarantee these loans so that American Citizens only require a 3% down payment.

See our mortgage calculator to estimate how your down payment and interest will effect your monthly payment!

These loans are available to those who didn’t have as good of credit as to qualify for a conventional loan. The downside is to these loans is that PMI costs never go away, and will be paid till you have sent in the last payment on your mortgage. There are many first time home buyer programs and down payment assistant options for FHA Loans, however they may raise your interest rate. You will have to discuss with your experienced loan officer which options are best for you.

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VA Loans

These types of mortgages are backed by the Department of Veterans Affairs. VA Loans are only for those who have served in the United States Military for longer than 6 months or their spouses. Spouses of those who have died on duty or as a result of an on duty injury can also get a VA Loan until they remarry. These loans require $0 down and many mortgage lenders and title companies offer discounts to Veterans for closing costs.

There is a 3% fee that goes with these loans, but they can be absorbed into the loan. For example if you’re buying a $100,000 house, after you close escrow you will owe $103,000. This fee can be reduced if a down payment is made. If you are a Veteran who received disability, the fee is waived all together. VA loans do not require PMI at all, which is another benefit to these loans. They also offer payment assistance if a Veteran is having a hard time making monthly payments.

Jumbo Loans

Of the above loans (FHA, Conventional, and VA Loans), the average limit is $417,000. This changes in some markets if the average cost of real estate is much higher. Jumbo Loans start where the other loans stop in all markets. These loans require excellent credit scores, a minimum of 20% down payments, and can be used for residential, vacation or investment purposes. These are the loans that a majority of the population cannot afford, and they are not as common as the first 4 types of mortgages.

Mortgage Options

ARM Mortgages Many of the 4 most popular loans above have different options as well. And ARM Mortgage, or Adjustable Rate Mortgage, will have a changing interest rate and will cause your monthly payments to go up or down. Usually the interest rates are lower for these loans initially, and after the fixed rate period of these loans are over, your monthly payments may also be less expensive. The downside to these mortgages is that you can’t control whether they go up or down, and you may be paying more in monthly payments as your interest rates increase.

Fixed Rate Mortgages These loans do not change in interest or monthly payment. You will pay the same monthly payment at the beginning of your mortgage and at the end (unless you do something to change it, like refinance). These interest rates may start out higher than ARM Mortgages, but you are provided with more stability with the fact that your interest rates and monthly payments will never increase.

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How to choose a mortgage lender

Picking a lender is extremely important and is one of the first things you will do to start the process of buying a house in Henderson. Most people will choose the bank or mortgage company with the lowest interest rate. This can be a smart choice as the lower the interest level, the less you will have to pay on your house over time. However, this can be a sacrifice as many bigger banks and credit unions can offer these lower rates, but they often have less experienced mortgage agents and can take much longer to get paperwork done. Also many of our past clients have found that these mortgage agents will never meet them face to face and discuss all the mortgage options that are available to them, such as down payment assistance, benefits to larger down payments, and more.

When you choose a lender, you will submit personal information such as how much you make and how long you’ve been working at your current job. Bank statements and paystubs will also be requested as proof of how much money you have in savings and how much you really make at your current position. Once the lender processes the information, they will send you a prequalification letter officially stating how much money they will lend to you. You will want to forward this letter to your real estate agent so they can take you house shopping!

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