Choose the Right Loan
Your loan product should align with your financial goals. For example, if you are looking to put the smallest down payment possible on your mortgage, you may consider an FHA (Federal Housing Administration) or VA (Veterans Administration) mortgage. Most FHA mortgages require a minimum of 3.5% down payment. If you or your spouse have served in the US Military, the VA mortgage has no down payment requirement and does not have mortgage insurance. There are eligibility requirements for this mortgage, so see your Metro loan officer for more details.
On most loans, if your down payment is less than 20% of the home's value, you'll be required to add mortgage insurance to your home. Mortgage Insurance may also be referred to as PMI, MI, UFMIP, or MMI. This allows many borrowers to purchase homes that they may not have been able to otherwise get. This insurance offsets the lender's risks on types of loans that have a lower down payment. Mortgage Insurance does not provide a direct benefit to the borrower and is in place to protect the lender and related parties if the borrower stops making payments. The amount of mortgage insurance is calculated either on a monthly basis or a upfront lump-sum. In general, the larger the down payment, the lower the mortgage insurance payment will be. The good news is that as your home appreciates in value, you may have the opportunity to refinance your loan and remove your mortgage insurance at a later date. You can also work directly with your loan servicer (the company that you send your mortgage payments to) for the best way to remove the "MI". For FHA loans, mortgage insurance is always required regardless of the size of down payment. Refinancing to a Conventional loan product is the only way to remove the mortgage insurance on a FHA loan. Click here to read more about Refinancing.
If you are are able to put a down payment of at least 20%, you won’t have the additional mortgage insurance added to your mortgage, and may enjoy slightly lower interest rates and lower payments over time. A common strategy for first time home buyers is to use an FHA or VA loan to buy their home, and then refinance to a conventional loan with the equity in their home has appreciated.
You may have heard about “30 year” or “15 year” options. For the most first time home buyers, a 30 year term is a comfortable option. Extending your current mortgage into a 30 year term can significantly decrease your monthly mortgage payments. This lower payments means you can use your monthly cash flow on other things, such as college tuition, auto payments, or other quality of life improvements.
Inversely, if paying off your loan as soon as possible is your goal, a 15 year loan may be the right option for you. By shortening the term, you increase the amount owed each month, but decrease the actual amount of paid interest. If you are comfortable making a slightly higher mortgage payment, you may want to consider a shorter term. You will pay less overall interest for your loan, and be out of debt in half the time compared to the 30 year option.
There are also loan terms for every scenario in between including 10 years, 20 years, and 25 years. For questions, contact your Metro Loan Officer. It is our mission to help you find the best option to fund your future.