But before any of that, they wanted to move out of their rented two-bedroom apartment in downtown Manhattan to a house in Westchester County, where they could find more space and better amenities.
After searching for a while, they zeroed in on a beautiful double-storeyed villa, but it was out of their budget. Thinking about the future, they decided to go all in and contacted a bank for a loan. Upon assessing their credit report and income statements, Mr. Gael, the bank manager, suggested they go for a mortgage loan and asked how much they were willing to pay as a down payment.
Further, he discussed the period of amortization and the type of interest rate that would best suit Marshal and Lily.
If you're in Marshal and Lily's situation and need to understand the different kinds of loans available, Mares Mortgage has put together a comprehensive guide for you.
A Guide for Avoiding First-Time Home Buyer Mistakes
Different mortgage programs have different qualification standards and benefits, so understanding your home loan options before house hunting can help you make a stronger buying decision.
A reverse mortgage is for homeowners aged 60+, allowing them to receive payments based on their home equity. No repayment is required until the borrower passes away or sells the house. However, it can become expensive over time and has risks for surviving spouses.
Reverse mortgages can help retirees access home equity, but the loan balance grows over time and may affect what heirs inherit. It’s important to discuss the long-term impact with a trusted mortgage professional before committing.
FHA loans are backed by the Federal Housing Administration and require low down payments, as little as 3.5%, but often include additional mortgage insurance fees. FHA loans are accessible for buyers with lower credit or limited savings, but they require upfront and annual mortgage insurance that may last for the life of the loan.
VA loans are offered by the Department of Veterans Affairs for military personnel and their families. They require no down payment and are backed by the government. These loans often require upfront and annual mortgage insurance that can persist for the life of the loan.
Designed for rural buyers, USDA loans are supported by the USDA and Rural Housing Service to help lower-income individuals buy homes. USDA loans offer eligible buyers 100% financing with no down payment, and many suburban areas qualify despite the program’s rural label.
Conventional mortgages are not backed by any government entity. They are typically fixed in terms and interest rate. Most are supported by Fannie Mae or Freddie Mac.
Conventional loans are the most common home financing option. They require stronger credit and higher down payments but offer more flexibility. Putting down 20% or more eliminates PMI. See the full definition of conventional loans at the CFPB.
Jumbo loans exceed $766,550. While interest rates may be lower, stricter qualifications like low debt-to-income ratios and high reserves apply.
Jumbo loans are designed for high-cost home purchases and typically require strong credit, larger down payments, and substantial cash reserves.
These loans don't meet standard government guidelines. They allow alternative income proof like bank statements and can work for lower credit scores, high DTI ratios, or unique properties.
Non-QM loans help self-employed borrowers and investors qualify by evaluating their overall financial picture instead of relying mainly on traditional income documents.
Not sure which loan type fits your situation? Explore conventional loan options at Mares Mortgage and get matched with a program that makes sense for your goals.
Comparing the Best 5 Home Loan Programs
A mortgage broker is a professional who connects borrowers with lenders. They aren't tied to any single bank and help buyers find the most suitable financing options.
That independence is the real value. A broker's job is to represent you, not the bank. They pull from a wide pool of lenders and programs, which means more options and, often, more competitive rates than going directly to a single institution. They also handle a lot of the paperwork and coordination that can make the mortgage process feel overwhelming.
Mortgage brokers can help first-time buyers and borrowers with complex finances understand their loan options and improve their chances of approval. Mares Mortgage has been assisting buyers across Orange County since 1993, from first-time homeowners to experienced investors.
Questions to Ask a Mortgage Lender
Before you compare mortgage loan types, it helps to get familiar with the key terms lenders will throw at you. These aren't just finance jargon. They're the building blocks of every home loan decision you'll make.
A mortgage is different from a student or personal loan. It's a type of loan taken from a bank or financial institution to make large purchases, like a home. The property then acts as collateral for the loan. If the borrower fails to pay it back on time, the lender has the right to take possession of the home.
Most mortgages run for 15 or 30 years, though other terms exist. The longer the term, the lower your monthly payment, but the more interest you'll pay overall. Shorter terms cost more each month but save you significantly in the long run. It's a trade-off that depends entirely on your cash flow and long-term plans.
Collateral is a valuable asset pledged as security to the lender. It will be forfeited if the loan isn't repaid, and the value must be equal to or greater than the loan amount. In a mortgage, the home itself is used as collateral. This often leads to lower interest rates. Other types of collateral could include bank savings, investment accounts, or future paychecks.
When you apply for a mortgage, you're expected to pay a portion of the purchase price upfront. Unlike a student loan where the full amount may be covered, mortgage loans usually require an initial down payment, often 20%, but it may vary based on credit-worthiness and lender policies.
Putting down less than 20% is possible with several loan programs, but it usually means paying private mortgage insurance (PMI) until you've built up enough equity. PMI adds to your monthly cost, so it's worth factoring that in when deciding how much to put down upfront.
A credit report provides an overview of a person's financial habits and loan repayment history to determine their creditworthiness. Scores generally range from 200 to 850, with higher scores increasing the likelihood of loan approval.
Most conventional lenders look for a score of at least 620, though a higher score gets you better rates. FHA loans can go lower. If your score isn't where you want it to be, it's worth taking a few months to pay down balances and dispute any errors before applying.
An income statement shows income and expenses over a specific period. For individuals, it reflects monthly or yearly earnings and spending, helping lenders assess financial stability.
Amortization is the process of spreading out loan repayments in equal installments over a fixed time period.
In the early years of a mortgage, most of your payment goes toward interest rather than principal. That ratio gradually shifts as the loan matures. This is why refinancing early in a loan can sometimes make financial sense, since you haven't paid down much principal yet and can lock in a lower rate.
This is the percentage charged on the loan's principal. It's considered the cost of borrowing. Some rates remain fixed; others may increase over time. If the borrower pays interest on the original amount plus previously accrued interest, that's known as compound interest.
A fixed-rate mortgage means the interest rate stays the same throughout the loan term. This is ideal in volatile markets, though in long-term loans like 30 years, it might be more expensive if market rates drop significantly.
Fixed rates are currently the most popular choice among homebuyers because they offer predictability. You know exactly what you'll pay every month for the life of the loan, which makes budgeting a lot easier, especially for first-time buyers.
An adjustable (or floating) rate mortgage changes based on market conditions. The rate is usually the sum of a market index and a fixed percentage from the lender. The rate stays fixed initially, then adjusts periodically.
ARMs often start with a lower rate than fixed mortgages, which can make them attractive if you plan to sell or refinance before the adjustment period kicks in. Common structures are 5/1 or 7/1 ARMs, meaning the rate is fixed for the first five or seven years, then adjusts annually. If you're planning a shorter hold period, they're worth a closer look.
An interest-only mortgage allows lower payments early on, usually covering only interest. After that period, payments increase. This is typically a short-term mortgage up to 10 years, best for first-time buyers.
A balloon mortgage is similar to interest-only, but ends with a large lump sum. It can be risky and is ideal for those expecting a major income boost soon.
Choosing a mortgage is easier once you understand how loan types, such as fixed-rate or FHA, align with your income, credit, and long-term plans. You don't have to navigate this alone; a mortgage professional can offer free guidance to help you compare programs and save money.
To explore your options, contact Mares Mortgage today.
If you want to get started understanding loan options for your mortgage, contact Mares Mortgage to find out more.
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