Buying a house is exhilarating, but knowing and understanding the financing side of the housing market can be very overwhelming. But do not worry because choosing the right mortgage is not that difficult if you understand and know the language.
Once you have done your homework, identify the amount you are willing to pay for the house, the down payment amount as well as reviewed your credit situation, you will have a better idea on what kind of housing loan that suits your needs.
The most common types of housing mortgages include:
In this article, we will discuss two of the most common types of housing loan, the Conventional and the Jumbo mortgages. If you want to know more about mortgages and housing loans you can visit a site that engages in this kind of business.
Conventional housing mortgage
A conventional housing mortgage is a housing loan that is not insured by the United States government. There are two kinds of conventional housing loans: Conforming or non-conforming housing loans. A conforming home loan means the loaned amount will fall within the maximum limit that is set by Freddie Mac or Fannie Mae, agencies that back most of the United States mortgages.
On the other hand, mortgages that do not meet the guidelines are considered as a non-conforming loan. One of the most common types of a non-conforming loan is the Jumbo mortgage. Usually, the lending company will require people to pay private loan insurance on conventional mortgages when you pay less than 20% of the property’s purchase price.To know more about Freddie Mac or Fannie Mae, you can visit https://www.fhfa.gov/SupervisionRegulation/FannieMaeandFreddieMac/Pages/About-Fannie-Mae—Freddie-Mac.aspx.
The advantages of using conventional mortgages
This kind of mortgage can be used for primary, secondary homes or investment properties.
Its overall borrowing costs are lower compared to other kinds of mortgages, even though its interest rates are a little bit higher.
You can ask your lending company to cancel the Private Mortgage Insurance once you have paid the 20% equity of the house or property.
You have an option to pay at least 3% down payment for the loan backed by the federal government.
The disadvantages of using conventional mortgages
The required minimum FICO credit score is 620 or higher.
You need to have a 45% to 50% debt-to-income ratio.
You need to pay Private Mortgage Insurance if you are paying less than 20% equity of the house or the property.
You need to provide essential documents to verify your income, down payment, assets as well as your employment.
Who are the people who should get conventional mortgages?
Conventional housing loans are best for people or borrowers with good credit scores, a stable source of income, a good employment history, and enough money to pay at least 3% of the property’s down payment.
Jumbo housing mortgage
Jumbo loans are conventional mortgages that have non-conforming limits. It means that the price of the property exceeds the government’s loan limits. As of 2018, the maximum conforming mortgage limit for a single-family house in the United States is $453,100 according to FHFA or the Federal Housing Finance Agency. In other high-cost places, the price ceiling is $679,650. These kinds of loans are prevalent in places with a higher cost of living and usually require more extensive documentation to qualify.
The advantages of using jumbo mortgages
People can borrow more money to purchase a house in areas with a high cost of living.
The interest rates can be competitive with other types of conventional mortgages.
The disadvantages of using jumbo mortgages
You need to pay at least 10% to 20% down payment.
A 700 or higher FICO credit score is required, but some lending companies accept a minimum credit score of 660.
You can’t have 45% or lower debt-to-income ratio.
You need to show that you have assets, at least 10% of the loan amount, either properties (for collateral) savings account or cash.
Who are the people who should get jumbo mortgages?
Jumbo housing loans are great for more affluent buyers who want to buy a mid to high-end house. These people need to have a good credit rating (or excellent if they want their loan process to be a bit more hassle-free), high paying jobs, a steady source of income, and enough money to pay a right amount of down payment for the property. A lot of respectable lending companies offer jumbo housing loan at a competitive and reasonable interest rate.