Loan options can be overwhelming at first – but we are happy to give you some recommendations, based on your situation.

Insider tip: your choice of loan product and lender make a big difference to the Seller in how attractive your offer is to them! Provided the price of two offers is similar, the source of funding is becoming often the next most important consideration to a Seller when choosing the winning offer! We want our clients to have a competitive advantage and work with the best financing team possible to increase their odds. Getting expert advise from one of our top local Milwaukee lenders in person is critical to your success!

But even before you meet with a lender, you can begin the education process by reviewing the following common loans. We’ve broken them down into three categories depending on the type of loan:

Basic loan types:
The most common types of loans you’ll encounter. As these are not insured or guaranteed by a government agency, they’re generally considered a higher risk for lenders, so credit and income requirements may be stricter.

Government-insured loans: 
These loans are federally insured to protect the lender if you fail to repay the loan. The FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) are among the various government agencies that insure or guarantee these loans.

Loan repayment options: 
There are different repayment options for your loan, including fixed-rate mortgages and adjustable-rate mortgages, or ARMs.

Basic Loan Types

Jumbo Loans2020-04-13T14:41:50+00:00

A jumbo loan is a loan for an amount that exceeds the conforming loan limits for the county where the property is located. Because it doesn’t “conform” to the loan limit, a jumbo loan is by definition nonconforming. The current “conforming” (conventional) loan limit for a single-family (primary or second) home in Wisconsin is $453,100 and is set by Fannie Mae. When a mortgage goes beyond that amount (which equals a $566,000 purchase price with 20% down), it enters the category of a Jumbo Loan. Like other mortgages, Jumbo Loans come in the form of both Adjustable and Fixed Rates, which are often slightly higher than their conforming counterpart.

The market for more expensive homes is inherently riskier because of the limited number of potential buyers. As a result, property values are subject to greater swings, requiring more conservative underwriting requirements. Because of this higher risk, the average Jumbo Loan borrower typically has a better credit history, more stable income, and higher reserves (cash on hand or other assets that can be accessed, even retirement accounts) than a Conforming Loan borrower.

Conventional Loans2020-04-13T14:56:30+00:00

Most people who think about a mortgage, have a conventional loan in mind. A conventional loan is any loan that’s not insured or guaranteed by a government agency. It can be fixed for 5 years or 30 years or anything in between. Most conventional loans require a down payment of at least 5 percent, but ideally buyers want to plan for a 20 percent percent down payment. Borrowers who make a down payment of less than 20 percent generally must pay private mortgage insurance (PMI) on conventional loans, which adds to the monthly payment.  But that insurance will fall off once your home equity reaches 78 percent. Conventional loans are generally a good choice for borrowers with good to excellent credit, since they typically cost less than some government programs.

Government Insured Loans

USDA Loans2020-04-13T14:29:19+00:00

Government-insured U.S. Department of Agriculture (USDA) loans do not require a down payment and may have lower mortgage insurance premiums. USDA loans require borrowers to meet certain household income limits for the area where they want to buy a home. The property must also be located in an eligible rural area, like parts of Ozaukee County.

VA Loans2020-04-13T14:33:00+00:00

A VA loan is guaranteed (to the lender) by the U.S. Department of Veterans Affairs (VA). VA loans are a benefit to veterans and offer a great option because they don’t require a down payment (as long as the sales price doesn’t exceed the appraised value) or mortgage insurance. Veterans and active members of the military should check their eligibility before applying for such a loan. VA loans get issued by many regular banks and lenders. While a VA loan can be a great option to a buyer, they are not very popular with some sellers, because they can take a little longer and include an additional inspection. Most counties around Milwaukee have also recently been added to a zone where the VA requires a termite inspection letter, which has to be provided and paid for by the seller!

FHA Loans2020-04-13T14:37:45+00:00

FHA loans, which are federally insured by the Federal Housing Administration, require a down payment as low as 3.5 percent and tend to have looser guidelines. These loans may be a good option for borrowers with less cash and a lower credit score. Of course, lenders may have their own standards that require a higher credit score. FHA loans require upfront mortgage insurance and annual mortgage insurance (PMI) that you generally pay monthly over the course of the term. FHA loans are sometimes a good option, but not very popular with sellers, as they have additional requirements like an FHA appraisal and inspection to verify the condition of the home. Sometimes the FHA will make additional demands on the seller to improve the property – exterior paint and roofs are often the issue. Buyers should consider a low down payment conventional loan in comparison and see which one is a better fit.

Loan Repayment Options

Adjustable Rate Loans2020-04-13T14:23:39+00:00

Adjustable-rate mortgages typically have a lower interest rate that may go up or down after the initial term. Typically, the interest rate under an ARM will stay the same for five, seven or 10 years and then adjust annually after that. The rates are lower initially, so they appeal to people who know they will move and sell the house before the end of the fixed rate period. Most Americans buy a new house every 5 to 10 years, as their family grows or their job changes, so paying the higher rate on a 30 year fixed product could be a waste, if you will sell the house much sooner. Sometimes an ARM is an interesting option for someone on a career path that will provide more income in a few years. Sometimes it is easier to purchase a house with an ARM and then refinance into a 30 year product a year or two later. Bottom line: ARMs are cheaper and often popular for buyers who plan on refinancing and for borrowers planning to sell their home or fully pay off their loan in the near future.

Fixed Rate Loans2020-04-13T14:27:40+00:00

A fixed-rate loan locks in your interest rate for the entire loan term, which typically is 30 years (also called the amortization period). Most buyers choose a 30-year fixed-rate loan because they like the long-term predictability. Interest rates are typically a little higher on a loan that grantees a fixed interest rate for 30 years compared to a product that is only fixed for 5 years, but it gives buyers predictability and peace of mind.

Which Financing Option is Right for You?

Bottom line

To figure out which loan is right for you, you may have to think hard about your overall financial goals, your budget and your assets.
If you’re still a little confused, that’s fine – the vast array of mortgage options can make anyone’s head spin after a while. Consider contacting a lender to discuss which loan could be the best fit for your individual needs.

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