HOW TO FIND THE LOAN THAT’S RIGHT FOR YOU IN 2019

Finding the right mortgage in Washington State that best suits your individual needs may seem daunting. It doesn’t have to be. Below we review the options available for home loans and explain the advantages and disadvantages of each type. 

You have taken the big step and decided to buy a home. Now it is time to decide what type of loan is right for you. What are your options? There are many different home loans available in Washington State. The type of loan you choose should be tailored to your particular situation, including long-term plans, amount of funds you have available for a down payment, credit worthiness, and other qualifications. 

Subsequent to the housing boom and bust in the early 2000’s, the government imposed additional regulations on the lending industry. This has resulted in a reduction in loan types available, which makes it easier and less confusing to select the loan that works for you. Let’s explore your options for finding the best loan for you in Washington State. 

Fixed Rate Mortgages. 

The first step in finding the loan that is right for you is to ask yourself how long you plan to live in the property. For example, a condo could be a great place to start out, but might not work if you plan to have a large family later on in life. Fixed rate mortgages are great for people who plan to live in a property a long time, however, adjustable rate mortgages may be better for those with a plan to upgrade to a larger home in the near future.

Fixed-rate mortgages are also popular because they provide stability in budgeting consistent monthly payments, as well as protecting from inflation. They allow you to accurately budget for lengthy periods of time. When you have a fixed-rate mortgage, your interest rate will stay the same for the entire term of the loan, and your monthly principal and interest payments will not rise when the market interest rates rise. Home buyers who intend to live on the property for seven years or longer, may find this type of loan best suits their needs. 

Adjustable Rate Mortgages.

With an adjustable mortgage rate, the amount of your monthly principal and interest payment may change over time, as the rate adjusts periodically to keep pace with the economy. In a healthy economy, interest rates will decrease, thus your monthly payment will decrease.  However, more often than not, homeowners will find that interest rates increase over time. Whether interest rates increase or decrease, depends on fluctuations in the financial market. The good news is, an adjustable rate loan is generally set at a fixed interest rate for the first few years. Most are fixed from three to seven years, but some extend up to 10 years. More often than not, homeowners in the past found their rates increased after the initial period, resulting in an increase in their monthly payments.

The unfamiliarity and unpredictability that comes along with adjustable rate home loans can be frightening for a homebuyer.  During the fixed rate period, however, the interest rates for this type of loan tend to be lower than their fixed rate counterparts.  When you consider that it can provide huge savings on interest in the initial years, this type of loan may be an attractive and viable option for you. 

Conventional Home Loans

Currently, conventional mortgages represent around 2/3 of the homeowner’s loans issued in the United States.  A conventional loan is any type of homebuyer’s loan that is not offered or secured by a government in any way.  Without government backing, the bank carries a higher risk in cases of default and foreclosure, thus interest rates may be slightly higher.  A conventional home loan usually requires an excellent credit score and about 20% down payment on the home. Some require mortgage insurance, but at a lower cost.  With a 22% down payment, a homeowner will not incur the additional expense of monthly mortgage insurance payments.

Generally, a conventional loan incurs lower upfront closing costs and can be used for higher loan amounts.  The appraisal guidelines are more flexible than a government backed loan. They require reduced paperwork and can be quicker to the closing table than FHA.

These are the most popular types of loans, especially with homebuyers purchasing a second home or investment property.  

Conventional loans can be fixed or adjustable rate loans.

Government-backed home loans

The most popular types of government-backed loans are FHA and VA.  The federal government insures that the lender is fully compensated in the case of default or foreclosure.  This insurance comes at a price, borne by the homeowner through private mortgage insurance (PMI) premiums included in the monthly loan payments.  With a government backed loan, the home buyer must also reside in the property.

Many first-time homebuyers in Washington enjoy the flexibility of these loans.  Relaxed underwriting guidelines allow an applicant with a less than perfect credit score to qualify for approval.  In addition, most government loans require a maximum of only 3% down payment. This down payment can be sourced with gift funds from a friend or relative, or provided by specialized down payment assistance programs.   They will also allow a non-occupant coborrower in circumstances where an individual does not earn enough income to qualify on their own.

Government backed loans may require more paperwork than a conventional loan.  In addition, appraisal guidelines are stricter. If an FHA appraiser discovers a health or safety concern, they will require this to be remedied and re-inspected before final approval and closing.  

The vast majority of government-backed loans have fixed interest rates, however, some adjustable rate programs are available.

Where Can I find the best loan for me in Washington State?

Finding the right mortgage in Washington State does not have to be complicated. Rely on the mortgage planners at Sammamish Mortgage to review the advantages and disadvantages of each type, and how they best suit your individual needs.   Advisors will work with you to find the right loan to fulfill your short and long-term goals.  

Are you ready to take the next step to secure the loan that is right for you?  Apply for your preapproval today at https://www.sammamishmortgage.com/apply.

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