You can start to look at homes and explore loan choices at the same time. You may have already started looking at homes, or you may prefer to explore your loan choices a bit first before getting started with home shopping. It's up to you, however, don't wait until you've found a home before you start thinking about your loan options. You want to have a pretty good idea what kind of loan is right for you before you put in an offer on a home.
Your down payment amount affects your loan choices and your costs. Many home-buyers choose to put less than 20% down. When you put less than 20% down, you will likely need to pay for mortgage insurance. Mortgage insurance adds to your loan costs, but it helps you get a loan you might otherwise be unable to get. Mortgage insurance protects CFCU if you fall behind on your payments, however mortgage insurance doesn't protect you or pay your mortgage for you.
There are multiple options for buyers with less than a 20% down payment. Some options may be cheaper than others depending on your specific circumstances, the local market, and changing general market conditions. As your CFCU loan officer what they recommend and why. Common options include:
- A Federal Housing Administration (FHA) loan
- A conventional loan with private mortgage insurance or a "piggyback" second mortgage
- For active duty servicemembers, veterans, or surviving spouses, a VA loan
- For residents of small towns or rural areas, a USDA loan
There may be local down payment assistance programs available to you. Many local areas have down payment assistance grant funds available for first-time homebuyers with low and moderate incomes. If you're considering a local program, ask questions and find out whether there are any conditions you have to meet. For example, you may need to pay the money back if you don't live in the home for a certain amount of time.
If you're considering an adjustable-rate mortgage, make sure to consider the risk. The initial interest rate and monthly payment on an adjustable-rate mortgage are often lower than the interest rate and monthly payment on a fixed-rate mortgage, but an adjustable-rate mortgage is riskier. The interest rate and monthly payment on an adjustable-rate mortgage can go up significantly once the rate begins to adjust.