Taking out a home loan can feel taxing when you’re not equipped with the proper knowledge. If you know what to look for while selecting your home loan, though, you’re more likely protected from unwanted surprises later. Whether you have found your dream home and are looking to buy, need to refinance your mortgage, or simply want to tap into your home’s equity, knowing a few helpful tips will make the process easier. Don’t risk financial instability by venturing into home loan territory uninformed. Keep these factors in mind while shopping for your home loans Oregon.
Loan Types
There are various types of loans. Understanding the different options will help you choose what loan is best for your financial situation and help you get the best deal. Differing loans will affect how much you need for the down payment, the loan’s total cost (including interest and mortgage insurance), and the size of the loan you qualify for.
Conventional loan
The majority of available loans are conventional loans. These typically cost less but can be harder to qualify for. Conventional loans are not a part of any government program and can be “conforming” or “nonconforming.”
Conforming loan
A conforming loan must conform to financing limits determined by the Federal Housing Finance Agency (FHFA). An advantage of choosing this particular loan is that they often have lower mortgage interest rates as well as lower down payments. However, it may be harder to obtain if you have a low credit score.
Nonconforming loan
If you have issues with your credit history or have too much debt, you may have to opt for a nonconforming loan. The terms and conditions can vary widely, as they do not have to conform to any standardization. These loans come with certain risks. It’s important to shop around for comparisons since these terms vary from lender to lender. Nonconforming loans often have higher mortgage rates and require at least a 20% down payment. They are considered a higher risk loan for the lender, so it drives the rate up.
FHA loan
If you have a lower credit score, choosing an FHA loan may be preferable. The Federal Housing Administration (FHA) helps potential homeowners secure a loan through a private lender that they regulate. If you have good credit, it may still better to choose a conventional loan. However, an FHA loan can be the cheapest option for a borrower with lower credit or in need of a smaller down payment. It allows for a down payment as low as 3.5%.
Specialty loans
Some borrowers will qualify for special program loans. These include VA loans (Department of Veterans Affairs), USDA loans (rural development loan), and state programs. These programs are designed for veterans, public service members, or low- and moderate-income families. If you’re a borrower who falls under one of these categories, you may want to find out if you’re eligible for one of these programs.
Testing Out the Mortgage
If you’re uncertain about which mortgage option is best for you, you can try it out by asking your lender to preapprove you for a home loan. Before committing, this can help you determine how much you qualify for and what it will cost. You can also speak to a home loan specialist who can help guide you through the process and help determine what you can do to lower the price or increase your loan size.
This allows you to shop around and get a better understanding of what you qualify for before taking out the loan.
Interest Rates
There are two different types of interest rates—fixed and adjustable. Each affects your monthly payment differently. Knowing what your short- and long-term needs are will enable you to assess which type of interest rate will help you achieve your goal.
Fixed-rate loan
With a fixed-rate loan, your rate will not change. If you prefer lower risk with no surprises, this may be the route for you. Your monthly payments are less likely to fluctuate, as your interest rate and your monthly principal and interest payments do not change. However, these loans do come at a higher interest rate.
Adjustable-rate loan
If you’re not risk-averse, adjustable-rate mortgages (ARMs) offer a lower interest rate to start. If you know you only need the loan short-term, it could be cheaper initially. If you still need the loan once the initial fixed-rate ends, then you will most likely pay more money long-term. Also, the rate and monthly principal payments fluctuate according to the market, making these loans more unpredictable. These loans target people with lower credit scores and can be riskier for the buyer.
Options for lower rates
If you value obtaining lower interest rates without as much risk, you may want to consider choosing a credit union for your loan. Credit unions typically offer lower rates for all loan types. Since they are member-owned, they are not-for-profit and don’t have to pay federal income tax. Unlike banks, they don’t have to answer to investors and so have more control over the revenue they generate. This allows them to distribute a portion of their profits toward lowering mortgages and fees.
At Central Willamette Credit Union, we offer very competitive mortgage interest rates for your home loans in Oregon. If you’re searching for a great mortgage to purchase your dream home, need to tap into your home’s equity for home improvements or to consolidate debt, or want to start a home equity line of credit (HELOC) so you can use your equity like a credit card, our lenders are on your side to make the whole process easier.
Loan Term
The length of your loan affects the cost of your total monthly payments, the interest rates, and the amount of interest you will pay over the life of the loan. Generally, shorter terms will save you money in the long run but will have higher monthly payments. The longer the term, the more money it will cost you over time. However, a longer term will mean lower monthly payments.
Depending on your monthly financial situation, you want to factor in how long you need to repay the loan. A short-term loan will have lower interest rates and costs with a higher monthly payment. A long-term loan will have higher interest rates and costs with lower monthly payments.
Once you determine your credit score and budget, you can begin the process of figuring out which type of loans you’re eligible for. Keep these factors in mind as you shop around for the right type of loan for your specific needs. The more you know, the less you’ll be surprised with unexpected financial costs down the road. Finance your house without the added cost of anxiety.
