Before you sell or buy a house, you need to understand how mortgages work. Learn more about the main types of mortgages by clicking here.
The housing market in Pennsylvania continues to prosper. The average sales price for a home has increased by 37%. Purchasing a home is a solid long-term investment for Pennsylvania homeowners.
If you’re ready to purchase a new home or refinance your current one, there are multiple types of mortgages to choose from. Each mortgage option has its advantages and disadvantages. It’s important to know everything you can about each option so you make an educated decision for yourself and your family.
This guide will discuss the top mortgage options in Pennsylvania. Make the right choice as you pursue your long-term homeownership goals.
A conventional loan is different than other options because it isn’t backed by the government. Some of the qualifications a borrower will need to possess include:
Conventional loans can be more challenging to qualify for than other types of loans. This type of loan is ideal for those with steady employment and income history. You’ll also need to put down at least 3% of the home’s selling price.
The mortgage rates with an adjustable-rate loan will change over the repayment term. The initial mortgage rate when you apply for the loan will be fixed for a short period. After that specific period, the mortgage rate will periodically change.
For example, a 5/1 adjustable-rate mortgage is a popular choice. The interest rate is permanently set for the first five years of the loan. The mortgage rate will get adjusted each year after the initial five years.
Some of the features of an adjustable-rate mortgage include:
This mortgage option might work for you if you don’t think you’ll have the mortgage for a long period. It’s also a good choice if you think that mortgage rates will be reduced in the future.
The interest rate of your loan is the same throughout the entire lifespan of a fixed-rate mortgage. Your monthly payments won’t change. The terms for this type of loan are usually 15 or 30 years.
A fixed-rate mortgage provides you with predictability and stability. You can accurately budget for your housing costs because your mortgage payment won’t change at any time.
Fixed-rate mortgages are also good choices for those who want to refinance their homes. Interest rates might be lower now than when you initially purchased your house. You can take advantage of reduced mortgage rates by applying for a new fixed-rate mortgage.
The US government isn’t a mortgage lender. However, the government backs different home loans to make owning a home more accessible for people.
The following agencies back home mortgages:
VA loans provide low-interest and flexible loans for military members. Veterans and active duty members can apply for a VA loan.
Some of the features of a VA loan include:
Keep in mind that VA loans do charge a funding fee. A funding fee is a percentage of your entire loan amount.
You can pay the funding fee when you close your loan. The fee can also get rolled into your loan cost along with the other closing costs.
USDA loans are designed to assist low-income borrowers in purchasing homes in rural areas. These homes have to be within USDA-approved areas.
There are some USDA loans where you don’t have to make a down payment. There are additional fees with this type of loan. This includes an annual fee and an initial cost of 1% of your loan amount.
FHA loans have competitive interest rates. You also don’t need a large down payment or a great credit score. Borrowers need at least a 580 credit score with a 3.5% down payment to apply.
You might qualify for an FHA loan if you have a credit score of 500. You will need to put at least 10% down if you want to qualify with a lower credit score. If you’re selling a house and the potential homebuyer is trying to purchase the home with an FHA loan, you can contribute to the closing costs.
Construction loans are a great choice if you’re buying a property that needs to get built. This type of loan functions differently than a traditional mortgage.
For example, a construction loan lender will issue payments in various stages based on how the home construction is progressing. Borrowers will receive funding when different milestones get completed. This is different than a traditional mortgage, where borrowers receive one lump sum.
Borrowers only need to make interest payments while the home is in construction. You’ll also only need to make payments on the amount of money that’s been received at that point.
Construction loans cover the following costs:
Permanent fixtures, like landscaping and appliances, can get included in the total loan amount. Home furnishings and decor aren’t covered in construction loans.
There are a few requirements for this type of loan. They include:
A qualified lender can discuss your options with you if you need to obtain a construction loan.
There are many types of mortgages to choose from in Pennsylvania. Your credit score, long-term goals, and down payment amount will affect which loan type you choose. Knowing the options before you contact a lender can help you make an educated decision.
Are you looking to sell your house fast so you have money to purchase your next home? First Choice Homebuyers in Pennsylvania is here to help. Contact us today to learn more about our home-buying services.
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