The U.S. housing market continues to expand. Home sales are rising, home prices are up, and it's all been buoying by the lowest mortgage rates in history.
Conventional mortgage rates have been below 4% for 19 straight weeks, and FHA mortgage rates and VA mortgage rates register even lower. Even better, mortgage lenders are approving more mortgages at application than during any period this decade.
If you're among the many people who plan to buy a home this year or next, then, you'll want to make sure you understand the process of it all -- specifically with respect to your home loan.
Understanding the mortgage process can help you save money on your purchase, and save money on your monthly payments.
For today's home buyers and households looking to refinance, there are multiple types of home loans available. A mortgage lender can offer you guidance, but it will be your responsibility to choose the most suitable mortgage program for your long- and short-term needs.
The first area in which to focus is "loan size"; how much money you'll want to borrow.
Mortgage calculators are available online and some will provide some insight into how much you should be borrowing. Starting with your maximum desired monthly payment; or maximum desired downpayment, you can often work-backwards to determine your proper home purchasing power.
Or, you can ask a lender for help.
Mortgage lenders will use specific formulas to calculate how large of a mortgage you can afford to give. Their formulas take into account your monthly expenses, your gross income, and your asset base, and other inputs relevant to the home purchase decision,
Note, though, that a lender's "maximum loan size formula" isn't designed to tell you how much you should borrow from the bank -- instead, it will tell you how much you can borrow from the bank.
Know your financial situation, so you can choose a mortgage loan size that works best for you. Banks may opt to lend you more money than you deem sensible.
Year after year, the most common mortgage type is the conventional 30-year fixed rate mortgage. However, it may not be the loan best suited to you.
A "conventional mortgage" is one which is backed by Fannie Mae or Freddie Mac, and which is typically within the local jumbo loan limit for your area.
Conventional mortgage loan limits begin at $417,000 and range up to $625,500, depending on where the subject property is located. You can lookup your area's mortgage loan limits here.
There is also a 3% downpayment loan available via Fannie Mae and Freddie Mac called the Conventional 97.
Conventional mortgages aren't one-size-fits-all, though, and other mortgage types may better meet your needs. Among the most popular of the non-conventional mortgages is the FHA loan.
FHA loans are loans insured by the Federal Housing Administration, and available via traditional mortgage lenders. FHA mortgages provide comparable mortgage rates and terms versus conventional financing, and have become popular as a result of lenient approval standards and low down payment requirements.
For example, the FHA requires just a 3.5% downpayment on most purchases; and its pricing can be more aggressive for home buyers whose FICO scores are below 740.
In 2015, FHA loans are available up to $625,500 for a one-unit home, and up to $1,202,925 for a 4-unit home.
Another non-conventional loan type is the VA loan, backed by the Department of Veterans Affairs. VA loans are available to military borrowers, require no downpayment whatsoever, and carry no mortgage insurance requirement.
VA mortgage rates have been the lowest of all common mortgage rate types for the last 12 months, at least. VA rates are currently close to 37.5 basis points (0.375%) below comparable conventional ones.
In total, there are more than half-dozen loan "types" from which a home buyer can choose. The better you understand your options, the better choice you'll make for your finances.
Mortgage products come in many varieties, and there is usually a "best fit" given your financial needs.
For example, adjustable-rate mortgages (ARM) typically offer lower rates for an initial set period, and then fluctuate to meet current market conditions. If you plan to live in your new home for a finite number of years, the designated low-introductory rate period offered by an ARM may be worthwhile to you.
ARMs are offered with initial teaser rates lasting three, five, and seven years, typically.
There are 10-year ARMs, too.
By contrast, fixed-rate mortgages maintain the same interest rate for the life of the loan, which allows a homeowner to budget and plan payments along a very long time frame.
Fixed-rate mortgages are offered in 10, 15, 20, 25 and 30 year terms, with the 15-year and 30-year terms most common among buyers. This is because the 15-year fixed rate mortgage and 30-year fixed rate mortgage tend to offer the lowest rates relative to other fixed-rate products.
Homeowners choosing a 15-year mortgage will carry higher payments than homeowners choosing a 30-year one but, at today's rates, the amount of mortgage interest paid over the life of the loan will be lower by about 65%.
When choosing between an adjustable-rate mortgage and fixed-rate one; and choosing your loan term, consider current market conditions, your personal economy, and the length of time you plan to live in the home.
Your credit score will play a large role in determining which mortgage product best suits you, and the mortgage rate for which you'll ultimately qualify.
If you don't have perfect credit, you can work on improving your credit score prior to applying for a home loan. High credit scores will help you get access to additional mortgage options as compared to a person with low credit scores; and will often grant you more aggressive mortgage rates.
Two quick ways to improve your credit score? One, spend responsibly; and, two, pay bills on time. These two factors account for 65 percent of your credit score.
In addition, be sure to receive a free copy of your credit report in order to check for errors or inaccuracies. If you find any, have them fixed immediately.
When you're planning out your mortgage, there's a lot of good research online. Mortgage calculators, expert insight, and plug-and-play mortgage calculators can help you do your legwork.
Then, when you're ready to get real interest rates, do that for free online. Quotes are available at no cost, with no obligation, and with no social security number is required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)