Types of Mortgage Loans Explained

Aug 24, 2018 | Satsuma News Team

Different types of mortgages are available to New Orleans homebuyers depending on the condition of the property, the size of the loan, and the availability of money for a down payment.

A Quick Guide to New Orleans Home Financing

Purchasing a home is likely one of the biggest financial commitments the average person will make, and more than 48 million Americans currently hold a mortgage, according to U.S. Census Bureau data.

Along with all of the considerations that go into buying a home in New Orleans, buyers should also understand the types of mortgage loans that may be available to them so that they can make the best decision possible regarding financing. There are a wide variety of mortgages available to the average homebuyer, including:

  • Conventional loans typically offer the best interest rates, but good credit and a down payment of at least 5 percent or 10 percent will be required. Conventional loans can extend 15 or 30 years and can be interest-only (not paying any principal in the payment).
  • Fixed rate loans, in which the interest rate and monthly principal and interest (P&I) stay the same until the loan is paid off, may be a good choice if you plan to live in your home for an extended time.
  • 203k rehab loans are popular with “fixer-uppers.” These loans, provided by the S. Department of Housing and Urban Development, allow homebuyers to purchase a home that needs minor to major improvements, but borrowers need to get preapproved for not only the purchase price but also the renovation costs.
  • Adjustable rate mortgages have interest rates and monthly principal and interest payments that stay the same for a stated initial period, after which they will adjust each year, but with an interest cap that limits how high or low the interest rate can go.
  • FHA loans available through the Federal Housing Administration have fixed- and adjustable-rate options. A lower cash down payment is required up front, but borrowers will have to pay FHA mortgage insurance premiums upfront and every month.
  • VA loans provide financing for veterans and others who meet eligibility requirements of the Veterans Affairs Available in fixed and adjustable rates, VA loans allow gifts or grants to pay closing costs, give current VA borrowers the option to refinance, and don’t require monthly mortgage insurance.
  • Loans for Teachers, Firefighters, Emergency Medical Technicians, and Police are available through the S. Department of Housing and Urban Development (HUD), which may offer a 50 percent discount on HUD-owned homes in areas with either high foreclosure rates or low homeownership rates. HUD also helps these professionals find other programs available locally that may either mortgage rates or lower down payment requirements.
  • Physician Loans can make a mortgage loan easier to qualify for, oftentimes with a lower down payment and no requirement to carry PMI. Most major banks offer physician loans, so check with your preferred lender for verifying your professional status and the specific terms being offered.
  • USDA financing offered through the U.S. Department of Agriculture provides zero down payment loans for rural and suburban homebuyers who don’t qualify for a traditional mortgage. This financing is available only for owner-occupied primary residences, and borrowers must be U.S. citizens, but monthly payments are 29 percent or less of monthly income.
  • Conforming loans are mortgage loans that are equal or less than the limit established by the Federal Housing Finance Agency and conform to Fannie Mae and Freddie Mac guidelines: $453,100 for single-family homes in the continental U.S.
  • Jumbo mortgages are non-conforming loans above conforming loan limits. The conforming loan limit is $424,100 in some of Louisiana’s parishes, and $636,150 in the highest-priced housing markets in the U.S.: Los Angeles, New York City, and San Francisco.

There are also non-traditional types of financing that are not offered by banks. These include:

  • Bond for Deed contracts, which are agreements between the buyer and seller in which the buyer pays the seller for the home in installments. Once a previously agreed upon amount is received, the seller then delivers the title to the buyer. This setup allows both parties to set their own terms regarding payments, interest, and other fees.
  • Owner financing involves the seller loaning the buyer the funds to purchase the seller’s home, and is often considered a short-term solution for buyers who intend to secure traditional refinancing within a few years.
  • Lease-to-Own or Rent-to-Own agreements allow a renter the option to purchase their rental home, typically within a few years of living on the property. Such an agreement may be beneficial for renters who need time to repair their credit or build credit In this setup, an agreed-upon portion of your monthly rental fee can go towards building a down payment.

Mortgage rates are determined by activity in financial markets around the globe. When the economy improves and bond prices plummet, interest rates generally increase, but when the economy slows down, interest rates also tend to fall.

The current mortgage rate (August 2018) is hovering around 4.43% for a 30-year fixed-rate mortgage and 3.85% for a 15-year fixed loan. To view updated daily rates, visit BankRate.com’s daily Louisiana mortgage rates.

If you’re looking to buy a home in New Orleans, contact the Realtors at Satsuma at (504) 483-8884 or use our quick online form for advice on selecting a mortgage loan that fits your real estate needs and goals.

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