With a fixed-rate mortgage, you pay the same interest rate for the full repayment term. This means your monthly base payment will most likely never change—even for long-term financing. The interest rates on fixed-rate loans are sometimes slightly higher than adjustable-rate loans, however, many home buyers value the security of knowing their payment will not increase in the future.
Adjustable-rate mortgages (ARMs), have a fluctuating interest rate, moving both up and down, based on market interest rates. There is also a hybrid ARM, where the loan has a fixed rate for a specific amount of time, after which the rate adjusts. For example, the 5/1 ARM has a five-year fixed rate, then after five years, the loan adjusts to prevailing interest rates.
Typically experienced home buyers utilize these loans as they are more likely to qualify and there can be greater risks than with other types of loans.
Conventional mortgages are ideal for most borrowers, especially those who have good or excellent credit and a good debt-to-income ratio. Such loans typically require down payments, closing costs, mortgage insurance, and points; but at UHCU we offer conventional mortgages with as little as 3% down and you should know that mortgage insurance doesn't stay on the loan for life, unlike some other types of mortgages. While it is easier to qualify for a conventional loan, the rate you qualify for will be partially determined by your credit score. But there are options for loans that are backed by the government which can help in some situations.
Federal Housing Administration (FHA) mortgage
FHA loans are insured by the Federal Housing Administration, a government agency within the Department of Housing and Urban Development (HUD). Borrowers with FHA loans pay for mortgage insurance, which protects the lender should the borrower default on the loan. The insurance increases the size of the borrower’s monthly payments. The lender, and the home itself, must be FHA-approved.
FHA loans are appealing to a lot of borrowers, such as first-time buyers with credit challenges, but their down payment requirements are minimum 3.5%, as opposed to a conventional loan with down payments as low as 3%. Additionally, if the borrower isn't putting down 20% then they must have mortgage insurance that will last the life of the loan. While credit challenged borrowers may see the appeal of FHA loans, it is good to know that they typically require a lot more documentation and work from the borrower to get approved. Your loan specialist can help you determine if an FHA loan is right for you.
Veterans’ Affairs (VA) loan
VA loans are offered to eligible, honorably discharged U.S. military veterans, active service members and spouses. Like the FHA loan, a VA loan is backed by the U.S. government; should a borrower default, the VA will reimburse the lender for any losses. This makes the VA loan very attractive for both borrower and lender alike.
To qualify for a VA loan, borrowers need suitable credit, sufficient income, and a valid Certificate of Eligibility (COE) issued by the VA. A big plus of the VA loan is that borrowers can receive up to 100 percent financing, so they aren’t required to make a down payment! Additionally, VA loans also have a streamline refinance, meaning that anyone with a current VA loan may be able to refinance quicker and cheaper than a conventional loan. Often times the VA refinance (Known as an IRRRL – Interest Rate Reduction Refinance Loan) doesn’t require the borrower to document income.
Choosing the appropriate loan is one of the most important steps in a successful home buying experience, and United Heritage Credit Union’s Loan Specialists are ready to take the journey by your side. To get started, you can apply online, or call one of our Loan Specialists at 512.435.4444!
Membership/Regular Savings account required. United Heritage Lending Policies apply. Guidelines, terms and conditions apply. Closing costs apply. Various loan programs are subject to borrower qualification. NMLS #630601. Registered Mortgage Loan Originators.