To make the right choice, start by understanding your objectives, what types of mortgage you qualify for, and the benefits and limitations of each option when it comes to a home loan. For instance, a Fannie Mae mortgage allows a smaller down payment as a percentage of your loan, but you can’t borrow as much compared with a mortgage that a bank will hold in its portfolio.
“Educating oneself is really important,” said Bob Walters, chief economist for Quicken Loans. “Talk to a couple of mortgage bankers until you feel comfortable with one. That’s going to be the best source of information.”
With recent headlines about jumbo mortgage rates reaching unprecedented lows, you may think that a low rate is the key. But you should consider a combination of elements in addition to the rate, including limits on the size of the mortgage, the amount of down payment, mortgage insurance costs, your credit rating and any additional fees that will be included in the closing costs. “There are a number of factors that will determine what program” suits you best, Walters said.
Before you start looking seriously at potential homes to buy, evaluate and compare the mortgage options. Obtain a pre-approval letter so you’ll be prepared to make a strong offer when you fall in love with a house.
“If you know in advance what you have available, it gives you more authority and competence when you’re out seeing houses and making an offer,” Rogers said. “When you’re making a decision around the house, you shouldn’t jerry-rig the financing to fit that.”
If you qualify, the original no-down-payment mortgage that the Veterans Affairs Department offers to military veterans is often a winning choice. Rates are low, some closing costs may be financed and you generally can borrow without a down payment. When Rogers makes presentations to Wells Fargo home mortgage consultants, he emphasizes that they should explore a VA mortgage.
“What are the first four words you should say to any customer?” he asks them. “Are you a veteran?”
VA loans aren’t technically limited in size, but if you need to borrow more than $417,000, you may need to put down some money depending on where you are buying in the region. In Montgomery County, veterans can borrow up to $843,750 with no money down, assuming full entitlement, Rogers said.
And even above those limits, the VA down payment will still be small compared with other mortgage options: For a $1 million property, you’d put down $39,100, he said. Credit quality doesn’t affect your interest rate with VA loans the way it would with conventional financing. Most VA borrowers pay a one-time funding fee for the VA guarantee; it may be waived for veterans with a service-related disability.