What to Know About Getting a Conforming Loan
Are you ready to purchase a home, and need to secure a mortgage to do it? Your best bet is to get a conforming loan for your financing. Here are a few key things to know about this type of loan before you apply
The Types of Conforming Loans
There are essentially three types of conforming loans that you'll have to pick from. A fixed rate loan is one of the more popular options ,because it offers consistent payments over the entire lifetime of the loan. You pick the length of the mortgage to determine how fast you pay off the loan, typically 15 or 30 years, and you make the monthly payments until it is paid off in full.
Adjustable rate mortgages are a bit different, because the monthly payment changes over the course of the loan based on a variable interest rate. The rate reflects the current interest rates at the time, so it can go either up or down as mortgage interest rates change. This is a good product for those that think that mortgage rates will decrease in the future. A hybrid adjustable rate mortgage combines the previous two products. It often includes a brief introductory period where interest rate is locked, followed by an adjustable rate period.
There are also several expenses associated with the loan, in addition to the interest that you pay. Every loan is going to have closing costs, which are typically based on the price of the home you are buying. More expensive homes will have higher closing costs that need to be paid. This includes the loan origination fee, which is the money that the lender receives for doing all the work to get you the mortgage.
Mortgage discount points can also be purchased as well, which are a way to lower the amount of interest you pay over the life of the loan. This can be a great way to save money if you plan on staying in the home for a while. Your lender can help you figure out what the break even point is on those mortgage points, meaning how many years you must live in the home before selling to make the mortgage points worth it.
Part of buying a home with a mortgage will require insurance, because the lender wants to ensure that the home is protected until the mortgage is paid off. Home insurance is a cost that you can't avoid as long as you are using a lender to secure financing. They want to ensure you don't walk away from the home without paying off your mortgage if it were to become damaged beyond repair and you couldn't afford to fix it.
To learn more, contact companies that offer conforming loan programs.