Purchasing a home can seem overwhelming, with so many options and industry jargon. Take a few minutes to understand the various types of home loans so you can move forward with confidence. Our mortgage rates calculator will provide you with rates and loan types for your situation.
- Fixed Loans: A Fixed loan has an interest rate that does not change for the duration of the loan, so your mortgage principal and interest payments stay the same. Fixed loans typically come in terms of 10 years, 15 years, 20 years, 25 years, or 30 years.
- Adjustable Rate Mortgage (ARM) loans: There are numerous types of ARM loans, with the most popular having a fixed term for a specified number of years (such as 5, 7, or 10 years) and can then be adjusted each year thereafter, up or down based on an index.
- FHA Loans: These are mortgages guaranteed by the Federal Housing Administration. The required down payments are smaller with these loans.
- VA Loans: These loans make it easier for veterans of the U.S. armed forces, and sometimes their spouses, to buy homes. They don’t require a down payment and are guaranteed by the Department of Veteran Affairs.
- Jumbo Loans: Jumbo refers to a mortgage that’s too big for the Federal Government to purchase or guarantee. The current limit is defined by the county where the property is located.
Mortgage rates are driven by movements in the financial markets around the world. When the economy is going strong, bond prices drop, and rates increase. Conversely, when the economy retreats, interest rates will tend to fall.
View current mortgage rates for fixed-rate, FHA, and Jumbo mortgages and get custom rates.
There are numerous types of ARM loans, with the most popular having a fixed term for a specified number of years (such as 5, 7, or 10 years) and can then be adjusted each year thereafter, up or down. These types of ARMs are referred to as 5/1 ARM, 7/1 ARM, 10/1 ARM, etc.
A Fixed loan has an interest rate that does not change for the duration of the loan, so your mortgage principal and interest payments stay the same. Whereas, with an adjustable rate mortgage (ARM) the interest rates are typically fixed for a specified number of years (5, 7, or 10 years) and can vary up or down after that period, based on an index.
Closing costs are fees paid at the closing of a real estate transaction when you’re buying or refinancing a home. This point in time called the closing is when the title to the property is conveyed to the buyer. Closing costs are the expenses, over and above the price of the property, that buyers and sellers normally incur to complete a real estate transaction.
Typically, the buyer’s costs include underwriting, appraisal fees, mortgage insurance, homeowner’s insurance, and property taxes.
Points represent any loan discount points sometimes charged to lower the interest rate.
PMI is Private Mortgage Insurance. On a conventional loan (Fixed, ARM), PMI is required if you borrow over 80% of your appraised value or purchase price (whichever is lower). This protects the lender against financial loss if the loan is defaulted.
Yes, you can make principal payments at any time during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump-sum payments periodically.
A conventional loan is the most common type of home loan. The requirements to qualify are more stringent than FHA as the lender will want to make sure you are a good credit risk since this type of loan is not backed by a government agency. Benefits include lower interest rate, less paperwork, easier to pass home inspection, and you can avoid paying personal mortgage insurance (PMI) if your down payment is large enough.
An FHA loan has more lenient requirements because it is insured by the Federal Housing Administration (FHA). This type of loan can be easier to qualify for with a lower credit score and has lower down payment requirements. However, FHA loans always require mortgage insurance (both an up-front mortgage insurance premium and monthly installments) and have stricter property standards. These loans are designed to help people purchase their first home but may also be a good option when refinancing a mortgage.
Purchase Home Questions
To determine how much house you can afford, many experts agree that people should spend no more than 28 percent of their gross monthly income on housing expenses and no more than 36 percent on total debt — that includes housing as well as things like student loans, car expenses, and credit card payments.
There are many types of home loans offering different terms and rates, some requiring lower down payments than others. Use this simple mortgage loan amortization calculator to find out what your payments would be and help determine the maximum home price you feel comfortable with.
Typically, if you’ve never owned a home, you are considered a first-time home buyer. Additionally, if you have not owned a primary residence for the last three years, you may still be considered a first-time home buyer. There is maximum financing and flexibility for first time homebuyers, with as little as 3% down. FHA loans are very popular for first-time buyers due to low down payment requirements of 3.5%.
Pre-approval allows you to get pre-approved for a specific loan amount prior to finding the home you want to purchase. The loan documents are reviewed, and the lender commits to a specific loan amount. A strong pre-approval can provide an advantage if someone else is interested in the same home simultaneously.
Drop us your details online or call us (425-748-9990) to get an accurate pre-approval right away. With your loan pre-approved, you can shop for a home knowing you’re ready to make a rock solid purchase offer.
Pre-qualification is the method of determining how much money you will be eligible to borrow before the loan application process occurs. A pre-qualification letter does not hold much weight when making an offer on a home. Buyers are strongly encouraged to go thru the pre-approval process.
You can lock or float your interest rate at any time once you are in contract to buy a home and a closing date has been determined. Your loan officer will advise you and discuss options at the appropriate time.
The costs of buying a home will vary depending on things like the price of the home, type of mortgage, and property taxes. Here’s a breakdown of the types of costs to expect:
- Ernest Money – When you make an offer on a home, you’ll need to come up with earnest money to show the seller that you’re serious about purchasing the home and can be around 1% to 2% of the purchase price.
- Down Payment – The size of your down payment varies by the purchase price and type of loan. Conventional loans usually require 20% of the purchase price as a down payment (to avoid paying PMI), whereas FHA loans would need 3.5% down, and VA loans require no down payment.
- Professional Fees – Beyond closing costs, you may also need to pay fees for realtors, inspectors, and attorneys who may be involved in the transaction.
- Closing Costs – Typically, the buyer’s closing costs include underwriting, appraisal fees, mortgage insurance, homeowner’s insurance, and property taxes.
- Moving Expenses – Be sure to factor in the costs associated with moving in.
Initially, there is no fee collected for a pre-approval. Appraisal fees that may apply to your request will be collected if you choose to move forward with your loan.
An escrow account is maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
- Have a valid SSN and be a legal resident of the US.
- Have verifiable and steady income.
- Have a debt-to-income ratio less than 50%.
- Have a minimum down payment of 3.5% (varies based on credit score). However, the money can be gifted from a family member.
- The property must be used as your primary residence.
- The property must be appraised by an FHA-approved appraiser and needs to meet certain standards.
- Must pay FHA mortgage insurance – both up-front as part of your closing costs and monthly as part of your monthly payment, paid for the life of the loan.
- More stringent property requirements – the house must be structurally sound and meet specific standards. If it is a fixer-upper, an FHA loan might not work.
- Must be your primary residence – FHA loans can not be used for vacation or investment properties.
- Limited loan size – the maximum loan amount is based on the property location.
There’s more to consider than just getting a lower mortgage rate. You should also weigh how long you plan to stay in your home. Use our refinance break even calculator, to determine the number of months to break-even if you refinance the loan.
People typically start thinking about a refinance when they notice mortgage rates falling below their current loan rate. But there are some other good reasons for refinancing your home loan:
- If you’re looking to pay off the loan quicker with a shorter term.
- You currently pay private mortgage insurance (PMI) and now you’ve gained enough equity in your home to refinance without the mortgage insurance.
- You’re looking to utilize your home equity with a cash-out refinance.
Cash-out mortgage refinancing is a way to both refinance your home mortgage and borrow money at the same time. It allows you to borrow more than your current loan, typically up to 80 percent of your home value, and receive cash (cash-out) for the amount that is higher than your current loan balance. To qualify for a cash-out refinance, you’ll generally need to get your home appraised.
Refinancing costs with lenders vary and typically include underwriting, appraisal fees, title fees, credit report, processing, doc prep, funding, wire transfer, and origination fees, and average between 2% to 5% of the loan amount.
Using Upwell Mortgage, you only pay an Admin Fee ($1,395) and appraisal fee (typically $675 if one is required) so you always know exactly what to expect. If you have enough equity in your home, the fees can even be included in your new loan. And in many cases, your closing costs can be paid for by us.
Refinancing your existing mortgage can provide many benefits, including a lower interest rate, shorter repayment term, and more manageable monthly payments. Calculate your potential refinance break-even point using our Refinance calculator.
With many lenders, mortgage refinance transactions can take 45 to 60 days based on the complexity of the loan. Using our streamlined process, you can refinance your home in as quickly as 15 – 21 days. A dedicated Loan Officer will stay connected with you every step of the way.
Typical documentation needed for a mortgage refinance transaction includes: proof of income (W-2’s, current tax returns), homeowners insurance verification, credit information, your monthly debt amounts, total assets, and an appraisal.
VA Loans Questions
These loans make it easier for veterans of the U.S. armed forces, and sometimes their spouses, to buy homes. VA Home Loans are provided by private lenders, such as banks and mortgage companies. They don’t require a down payment and are guaranteed by the Department of Veteran Affairs, enabling the lender to provide you with more favorable terms.
Use our VA loan calculator to see current rates and payment amounts.
- No down payment: Qualified VA Loan borrowers can purchase a home without a down payment. Most home loan programs require you to make at least a small down payment to buy a home. The VA loan is a true no-money-down opportunity.
- No private mortgage insurance (PMI): Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20 percent. This insurance protects the lender in the event you default on your loan. There is no mortgage insurance with VA loans.
- Lower closing costs: The VA limits the closing costs lenders can charge to VA loan applicants. Homebuyers can ask sellers to pay all their loan-related closing costs and up to 4 percent of the purchase price for things like prepaid taxes and insurance, collections and judgments.
- No prepayment penalties: A VA loan won’t restrict your right to sell your home. There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
- Lower interest rates: VA loans typically have the lowest average interest rates of all loan types.
The VA doesn’t set a minimum credit score requirement for the VA loan but also does not provide the loan. Most VA lenders do have a credit score minimum in order to be approved for VA financing. This can vary from lender to lender, typically in the range of 620-660 FICO score.
To be eligible for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs, have a valid Certificate of Eligibility (COE) and satisfy the lender’s credit and income requirements. You can get detailed eligibility information from the Department of Veterans Affairs website.
Yes, you can. There are 2 basic types of VA loan refinance programs:
- Interest rate reduction / Streamline refinance: If you have an existing VA-backed home loan and you want to reduce your monthly mortgage payments, this type of refinance lets you replace your current loan with a new one under different terms.
- Cash-out refinance: A VA cash-out refinance loan is designed to allow veterans with an existing VA or conventional loan to use their home equity to fund home improvements or other major purchases. The amount of cash available to the borrower is determined by evaluating the current appraised value of the property. Most VA lenders will allow a cash-out loan amount of up to 90 percent of the appraised value.