How Do I Know Which Loan Option Is Best for Me?

If you’ve been considering buying a home in the Johnston County area, you might’ve heard that mortgage interest rates are pretty near rock-bottom low right now. But, what exactly does that mean, and how does it determine what you’ll pay for a home? Really, it all depends on your mortgage.

Here’s what I mean.

Common Loan Options for JoCo Buyers

discussing loan options

Though there are hundreds of different loan options out there, there are really only a handful that see regular use in this area. Here are a few you should probably know about.

Conventional mortgage

shopping for mortgages

When you think of a “traditional mortgage”, this is it. Conventional mortgages are offered by most banks, credit unions, savings institutions, and mortgage brokers. Typically, they have pretty strict credit and income requirements, as well as a fairly significant down payment—usually about 20%.

Though it’s possible to obtain a conventional loan with less than a 20% down payment, you will likely pay private mortgage insurance to guarantee the loan.

FHA mortgage

talking about loans

Offered by the Federal Housing Administration, the FHA loan is backed by the government, which means it has less stringent credit and income requirements than a conventional loan. Additionally, it allows buyers to purchase with as low as a 3% down payment, which makes it a popular choice for first-time buyers and those with lower credit scores or savings.

Some things to note about this mortgage: for one, there are usually pricing caps set, meaning you can’t use it to purchase a home over a certain price. And for another, it usually requires private mortgage insurance, at least for a designated period of time.

VA loan

using a va loan

VA loans are designed to help active military personnel and veterans purchase homes. Like the FHA loan, VA loans have lower income and credit requirements, and options for down payments as low as 0%. However, the VA loan is actually issued through a private bank or lender and backed by the VA, which means no private mortgage insurance is required.

A note about this mortgage: a one-time funding fee may be required depending on military or veteran status. There are also some regulations on which fees must be paid by the seller, and the home must pass a VA appraisal.

USDA Rural Loan

buying a home with a rural loan

Akin to the FHA loan, the USDA Rural Loan is a government loan targeted to buyers with lower credit, income, or savings. This particular type of loan, however, is restricted to buyers in more rural areas—which definitely can apply to some of the communities in the JoCo area. Like the VA loan, the USDA loan allows for as little as a 0% down payment, though private mortgage insurance will likely be required under 10%.

Balloon mortgage

paying for a home with a balloon mortgage

Where the previous three loan types typically remain fixed over a long duration of 15 or 30 years, the balloon mortgage works a little differently. Balloon mortgages are usually only about 5 or 7 years in length, but with a monthly payment based on a 30-year mortgage. At the end of that 5 or 7 year loan term, you must pay off the remaining balance, refinance your loan, or convert your mortgage.

Balloon mortgages may be easier to qualify for initially, or offer lower interest rates. However, they can get a little tricky once the initial loan is up, as you might find yourself scrambling to make a decision in potentially less favorable economic conditions (i.e. refinancing when interest rates are higher).

NCHFA Home Advantage

discussing mortgage options

Offered by the North Carolina Housing Finance Authority, this state-specific loan offers down payment assistance up to 5%, as well as competitive interest rates. It may be paired with FHA, USDA, or VA loans for up to 100% financing (that’s a 0% down payment). Additionally, first time buyers and veterans may be eligible for the NC 1st Home Advantage Down Payment, which provides as much as $8,000 in down payment assistance.

Want to Learn More About Your Loan Options?

This is just a brief overview of the options that might be available to you… there are more options, and more combinations of options, that might work even better for your situation. Not sure where you start? Call me, Marlo Wells, your local Johnston County loan queen and real estate expert! I’d love to talk loans, lenders, and all things real estate in Johnston County, NC.

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