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Your Path to Homeownership: A Guide to Different Home Loan Options

There’s more than one way for you to reach your goal of homeownership. Explore the different home loan options available to you in northeast Wisconsin. 

There’s more than one way for you to reach your goal of homeownership. Financial institutions understand that home loans are not one-size-fits-all. Read on below to find out more about the different home loan options available to you in northeast Wisconsin. 

Conventional Home Loans 

Conventional loans are the most common home loan option. But does that mean it’s the right one for you? 

Each lender may have different requirements to be approved for the conventional mortgage. The two main factors are usually one’s credit score and their debt-to-income ratio. Again, it varies, but the minimum is typically a credit score of 620 and a DTI ratio of 45 percent. 

The minimum down payment for this option is typically 5 percent. But if you put down 20 percent or more, you can do without private mortgage insurance. 

If you can’t put 20 percent down? Don’t worry. The rates of PMI are usually less with a conventional home loan than with some other mortgage options. In fact, the overall borrowing cost is often lower than most other mortgage types as well. That’s perhaps the most notable advantage a conventional home loan has and is probably part of why it’s so popular. 

First-Time Home Buyer Loans 

Thanks to this home loan option, realizing one’s dreams of homeownership is more reachable than ever before. With a first-time home buyer home loan option, you might be able to put little to no money down. That takes away the stress of saving up for a down payment. Often, people can get so discouraged about down payments that they stop searching for home loans before they even start. That’s why it’s helpful to know about all these options. 

Other first-time home loans require down payments of 3 percent. Even so, hope isn’t lost. Certain supplemental programs may be available through the government or through private programs, such as down payment loans. If you qualify for these loans or grants, that can help you cover that down payment as well as the closing costs. This assistance may even be provided by your employer, especially if it’s essential for employees to reside in a certain area. 

For first-time home buyers, it’s also beneficial to look into educational resources and programs. Many lenders want to improve their member’s financial literacy and help them make smart financial decisions. 

It is also recommended for first-time home buyers to meet with home loan experts at their financial institution. The experts will take your goals, budget, and overall financial situation into account. They will teach you how to spot the best home loan option, which will be beneficial again if you move to a second home down the line. The guidance these experts provide can be priceless for your financial and homeownership future. 

Adjustable-Rate Mortgages 

Monthly payments for an adjustable-rate mortgage stay the same for the first years of the loan. After that fixed period, which usually lasts for 5 to 10 years, ends, then the monthly payment rates can fluctuate depending on the housing market. Fortunately, there are caps for just how high your monthly payment can go. But there are also caps on how low your rates can go. 

During the fixed period, your interest rates might be lower than any other option. For that reason, it may be a better option for people who only plan to live in their home for 10 years or less. 

Fixed-Rate Mortgages 

When you sign up for a fixed-rate mortgage, you’ll be locked into a monthly payment that stays the same throughout the entire lifetime of your home loan. This is a great choice for you if you’d rather keep your home loan monthly payment consistent. That consistency makes it much easier to plan budgets for the months and years to come. 

Other reasons to go with this option? If you plan on staying in the same home for over 10 years and/or are concerned about rates rising over time and want to lock in a low rate while you can. 

However, this loan means that if the market causes mortgage rates to go down, you’ll have to sign up for a whole new mortgage to take advantage of the lower rates. And if rates are high when you sign, you’ll end up paying more in interest than you would with a different home loan option. 

Another thing to note about a fixed-rate option is your monthly payment may still vary for other reasons, such as property tax rates and insurance premiums. But that won’t change the cost as much as a variable rate could. You’ll still have the most consistent of home loan options. 

Construction Loans 

A construction loan is a short-term home loan. While the loan term can vary, this option usually lasts one year. This option may be the best pick for you if you are planning to build a new home, as opposed to buying or renting a place. These home loans can also be referred to as self-build loans. 

Because of the risks and special circumstances, there are some drawbacks. Namely, construction loans usually have higher interest rates. There’s usually a requirement for a bigger down payment, with a minimum of about 20 percent. But if your ideal path to homeownership is to build it yourself, it may be worth it. 

Construction loans also have unique requirements to go along with their unique type of home loan. To secure your loan, you’ll have to provide a blue book that contains details about the construction for which you plan to use the loan. 

With this type of home loan, you should also choose a home loan lender local to northeast Wisconsin. A local financial institution will be aware of the housing market, qualified builders, permit requirements, and so on in your specific area. 

At Capital Credit Union, you’ll find the best home loans available in the northeast Wisconsin area. Our team of experts will advise and work with you to determine which option is the best for your homeownership dreams. Schedule an appointment or apply online today. You can find more information about our credit union, our northeast Wisconsin home loans, and how to best prepare for your appointment with us, all by exploring our website.

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