Loan Option 1
What Types of Loans Are There?When you’re interested in buying a home, one of the first things you should do is compare different types of real estate loans. At United Heritage Credit Union, you’ll have several options available – our loan specialists are standing by to help you choose the best loan for you. Here’s a quick introduction to several of the most common types of home loans:
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.
Loan Estimates – What You Need to KnowWhen you’re looking to finance a home there are several things you need to consider, including the loan estimate, which is key in understanding the actual terms of the loan. The loan estimate can be a good tool when comparing lenders if you haven't already finalized your financing with your bank or credit union.
What is a loan estimate?
The loan estimate explains the mortgage terms, costs, and interest rate. It is a three page document with a prescribed template; this ensures that you can fairly evaluate one lender’s proposal next to another. It contains details regarding the interest rate, closing costs, monthly payments, and other information you can use to make a final decision. It’s important to remember that the loan estimate needs to be signed and returned to the lender before it expires which is typically 10 days after it has been issued. Once the estimate is returned to the lender they will be able to work with you on the timeline for the rest of the loan process, including a closing date.
The Consumer Financial Protection Bureau (CFPB), a U.S. government agency, offers a checklist to help you verify that all elements on your loan estimate are present and correct.
On average, most borrowers keep a mortgage for about five years before moving or refinancing. While your situation may be different, figuring out the total dollar amount you will pay in interest and fees over five years is a good way to compare loan offers.
Apples to Apples
Make sure the loan terms and figures are comparable across loan estimates from different lenders, and make sure that any costs are reasonably estimated. Remember, if one loan estimate shows significantly lower taxes and insurance, that doesn’t mean that loan is a better deal. Lenders don’t control your taxes and insurance. Also be sure to check that all the loan estimates show the rate is locked. If the one of the estimates is not locked the rate and fees could change. Watch out for lenders who send out a low rate and low fee loan estimate that isn’t locked as you could end up locking in a higher rate and fees later.
Reading the Loan Estimate
There are nine main elements in a loan estimate, which makes it simpler to evaluate proposals across lenders:
- Loan Overview
- Loan Terms
- Projected Payments
- Costs at Closing
- Closing Cost Details
- Additional Loan Information
- Details for Comparison
- Other Considerations
- Confirmation of Receipt
When you accept a loan estimate and proceed with the loan, you will receive another document called a closing disclosure, which shows what you will be paying at closing. The lender typically sends the closing disclosure (CD) close to your closing date. Make sure to compare the loan estimate to the closing disclosure, and if there are any major differences, ask the lender to explain the differences to your satisfaction. You may get an initial CD that doesn’t have the final fees so it is important to ask if the CD has the final fees. Often times lenders will send the initial CD that shows the same fees as the loan estimate, then closer to the closing the CD can change to include the final fees, like those from the title company. Make sure to clarify if you are viewing the final fees, if not the numbers may still change as they are balanced at closing.
Some differences between the estimate and the disclosure are permitted, but others are not. Your UHCU Loan Specialist can help you with specific questions regarding final costs and fees, and any other questions you might have in the mortgage process. Call your UHCU Loan Specialist at 512.435.4444 or visit our Home Loans page!