When it comes to closing on your new home, few things are more important than the mortgage loan you get. But all loans are not created equal, and we don’t just mean the price! At Network Real Estate, it’s our job to keep you informed at every step of the home buying process. To help you make sense of your investment, we’ve broken down the main types of mortgage loans on the market today.
The first major division in home mortgage loans is fixed versus adjustable loans. In a fixed loan, the interest rate remains the same throughout the entire loan repayment. Although your interest rate itself depends on your credit and the local market, a fixed loan guarantees that your interest rate will never go up or down. Conversely, in an adjustable loan, the interest rate will change throughout the repayment period. Typically, the adjustable loan interest rate will be lower than average for the first year of repayment, and will then gradually rise. To many buyers, fixed-rate loans are seen as more attractive, but adjustable loans may have the benefit of better initial terms, and may be a good option for homeowners who only intend to own their home for a few years.
Whether you have a fixed or adjustable loan, you will also need to research whether conventional loans or government-insured loans are right for you. Simply put, conventional loans have no affiliation with the U.S. government. These loans tend to be more negotiable, as they don’t have to adhere strictly to the terms of a government organization, which is a pro if you have excellent credit, but could mean higher rates if you have below-average credit. Government-insured loans fall into several categories, such as FHA loans (loans backed by the Federal Housing Authority) or VA loans (loans backed by the Department of Veterans Affairs). FHA loans have a big advantage because they allow for buyers to make lower down payments, many for less than 5 percent of the purchase price. Many families and individuals in the greater Wilmington area also may be interested in VA Loans, which is a loan offered to military service members. This loan is backed by the U.S. Department of Veteran Affairs, and is highly beneficial for homebuyers because it does not require a down payment whatsoever.
Another important division in mortgage loan types is whether a loan is conforming or jumbo. Which category a loan falls into depends on two very important corporations: Fannie Mae and Freddie Mac. If these names don’t sound familiar to you, Fannie and Freddie are government-affiliated corporations that purchase loans from lenders and sell them to Wall Street investors. Freddie and Fannie set limits on the maximum size they are willing to back, and loans that fall within these limits are called conforming loans. Loans that exceed those limitations are called jumbo loans. Jumbo loans are considered “high risk” and require a higher down payment and a higher interest rate.
Network Real Estate has established relationships with local lenders, and we always ensure that our clients are working with a trustworthy lender. We value honesty and transparency at every step of the real estate process, and we can put you in touch with lenders who share our values. Now that you have the rundown of the major loan types available to you, contact Network Real Estate to begin the process of purchasing a home in Wilmington, N.C.
Kevin McKoy is a GRI-certified, licensed real estate broker at Network Real Estate, which has exclusively served a high volume of property sales and purchases in the greater Wilmington area for over 30 years. With three offices at College Road, Historic Downtown and Pleasure Island, Network’s brokers are widespread and well-versed in this marketplace, making Network a preferred Real Estate company for first-home buyers and beyond.
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