Finding your dream luxury home is only part of the challenge when you're in the market for a new house. The other part is finding the right loan to finance that dream. Which type of Valrico home financing is best for you? It's not as easy as deciding if you prefer a 15-year or 30-year term.
You'll have to factor in how much money you'll have to borrow, impacting how much down payment you'll have to put down. The state of your credit plays a role as well. Innovative financing always matches your financial goals. However, with all the options available, finding the one that makes the most sense may feel daunting. This is why it's always a good idea to have a professional real estate agent working closely with you to determine which option is best for you.
Six types of Valrico home financing options
Your realtor may guide you into considering these loan options to finance your new opulent home.
1. Conventional mortgage
These are the most common mortgage loan options. Even so, they might have different requirements than other loan options for debt-to-income (DTI) and minimum credit score. You may be eligible for a conventional mortgage if you have a DTI of up to 50% and a minimum 620 credit score.
You can purchase a house with as little as 3% down with a conventional mortgage if you're a first-time homebuyer. If you already own a home, you'll need 5% down. Your credit score will need to be at least 620 to qualify. If you put a minimum of 20% down, you won't have to purchase private mortgage insurance (PMI).
If you put anything less than 20% down, you'll be required to buy PMI. Conventional loans typically come with lower mortgage insurance rates than other loan types, like a Federal Housing Administration (FHA) loan, for example. Conventional loans are a better option for most borrowers looking to put down a larger down payment and take advantage of lower interest rates.
2. Fixed-rate loan
A fixed-rate loan is another common type of conventional loan. Most borrowers opt for these types of loans for their long-term loan solution since they can accurately predict monthly payments and future costs.
You generally pay monthly for a typical loan term of 15 or 30 years. It comes with a single interest rate that stays the same (fixed) for the entire life of the loan.
Fixed-rate loans are suitable for homeowners who prefer predictability and don't plan on going anywhere soon. You'll pay a certain amount for a certain number of years. You'll also have to pay a down payment. Your home loan terms won't be changed due to interest rates rising and falling, so you can rest assured your monthly payment will not change. If you plan on staying in your home for a good portion of the loan term, then a fixed-rate mortgage may be a good option.
3. Adjustable-rate mortgage (ARM)
This type of mortgage offers lower interest rates that are generally lower than what you'd pay with a fixed-rate mortgage for a specific period (i.e., five or ten years) instead of the whole life of the loan. Then, once that period is up, your interest rate will adjust, changing your monthly payment, generally once a year, and usually corresponding to the current interest rates. This means you can expect your monthly payments to go up if there's a spike in interest rates. In contrast, you can expect to pay lower monthly payments if the interest rates plummet.
In recent years, ARM mortgages were blamed for the flood of foreclosures, but they're rising in popularity again, especially among luxury property buyers.
ARM loans are particularly tempting for homebuyers requiring jumbo loans. Nearly half of all jumbo loans are ARMs. Lenders state that high-net-worth homebuyers face relatively little risk since they can pay off a loan by tapping into liquid assets should there be a sudden spike in interest rates. Because of this, high-end buyers take advantage of ARMs to finance their home purchases and unlock some savings.
4. Jumbo bank statement loan
These types of loans, which more than doubled in number in 2021, are for homebuyers who are self-employed and are seeking alternative Valrico home financing options for luxurious properties up to $5 million. If you've been self-employed for a minimum of two years and you can provide 12 months of bank statements, then a jumbo bank statement loan may be a good option for you.
These loans offer features such as no tax returns required, high loan amounts, no PMI required with down payments less than 20%, up to 50% DTI ratio, and more.
With the jumbo bank statement loan type, lenders are looking for credit scores of 660 or above. Your credit score not only determines what your down payment will be, but it also influences the interest rate you'll pay.
5. FHA loan
The FHA guarantees this type of loan. Its qualification criteria make a loan more accessible for a variety of borrowers, including those in the extravagant real estate market. Your down payment and credit score are linked with an FHA loan.
To be eligible for the lowest down payment, which is 3.5% of the home's purchase price, you need a minimum credit score of 580. If you have a lower credit score in the 500 to 579 range, you must put at least 10% down. All borrowers have a maximum of 43% DTI ratio, and you can only use this mortgage option to fund a primary residence. Any borrower who puts less than 20% down will have a PMI requirement.
6. Non-qualified mortgage (non-QM)
This loan, which refers to a non-QM, is offered by subprime lenders willing to provide larger loan amounts to finance luxury homes. Non-QM loans offer interest-only payments and loan terms that exceed 30 years.
How can a skilled Valrico, FL, real estate professional help?
If you're buying an upscale home in Valrico, Fla., and are looking into financing options, there's no doubt that you're feeling a little overwhelmed. It can be an intimidating step in the homebuying journey. Fortunately, you don't have to navigate this on your own. Most experienced real estate agents have likely worked with various mortgage lenders and will be happy to not only help you find your dream home but also guide you through the mortgage process.
An essential first step in buying a home is getting preapproved for a loan. Therefore, it can benefit you to work with a skilled agent.
Let Brenda Wade assist you with your Valrico home financing needs
Hiring a highly qualified real estate agent like Brenda Wade can save you money, time, and a great deal of stress. Brenda can help you find the perfect home and ensure you have the right Valrico home financing in place to ensure you not only get your dream property but also get it at the best price.
Smart finance options are available to you. Let Brenda help you find the right home so you can move into your new home as quickly as possible. Contact Brenda Wade today to get the process started.
