Choosing the Right Mortgage – Part 1

Deciding how to finance your new home is a very important consideration. How do you know which mortgage program is right for you?

Two of the most popular types of home financing options are Conventional and FHA loans. A Conventional loan meets the standards of Fannie Mae and Freddie Mac, the two biggest U.S. government-owned agencies that buy mortgages from lenders. One misconception is that FHA loans are only available through the government; however, they are offered by most lenders directly and then insured against default by the Federal Housing Administration.

There are benefits and drawbacks to each type of financing. While both offer Fixed Rate and Adjustable Rate programs as well as competitive rates, the choice may depend on your financial situation or what you qualify for.

An FHA loan only requires 3.5% down compared to at least 5% down on most Conventional loans. FHA loans also have more lenient qualifying guidelines regarding blemishes on your credit report or gaps in your employment history. In addition, more latitude is given to your Debt-to-Income ratio (your expected monthly housing expense and other monthly debts divided by your gross monthly income) compared to Conventional loans.

The biggest drawback to FHA loans may be the cost of mortgage insurance. As mentioned earlier, they are insured against default by the government through upfront and annual Mortgage Insurance Premiums (MIP). Conventional loans with less than 20 percent down usually require Private Mortgage Insurance (PMI) which is obtained directly by the lender through various companies in the marketplace; however, there typically is not an upfront cost and the annual premiums are less expensive than FHA.

With today’s incredible home values and historic low rates, a Conventional or FHA loan could help you move into the home of your dreams sooner than you think. To learn more about your financing options you should speak to an experienced home loan professional at TBI Mortgage Company. For more information, please call them at 1-800-647-9735.

For Part Two, we’ll review the differences between Fixed Rate and Adjustable Rate loan programs. Stay tuned!



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