What are my Loan Options?
When you hear the term “loan options,” what comes to mind? Loan options can refer to a number of things, it’s important that you know what kind of loan is best for your financial situation before making a decision about which route you might take. Loan options are typically asked in relation to refinancing your home. There are several different types of loans available, and knowing which one would fit your needs, is essential if you want to make the most beneficial choice for yourself and your family.
Here at Handshake Home Loans Inc., we offer a wide variety of loan options – read below as we explore the differences between each type:
There are four types of loan products we currently offer: FHA loans, Conventional loans, Jumbo loans, and VA loans.
FHA Loan: FHA stands for Federal Housing Administration. FHA loans are government-insured mortgages that require a smaller down payment than traditional financing methods. FHA also makes it easier to qualify by allowing an applicant’s credit score to be lower than other types of loans.
Conventional Loan: Conventional loans usually conform to Fannie Mae or Freddie Mac’s guidelines, but they do require a down payment of at least 5%. Conventional loans offer more flexibility when it comes to debt-to-income ratios and credit scores.
Jumbo Loan: Jumbos are home loans that exceed the Fannie Mae (FNMA) and Freddie Mac (FMCC) loan limits. The most common jumbo loan amount is $417,000 in most states, but there are some areas where this number can be higher; each mortgage lender has their own rules when it comes to what kind of jumbo they will finance so it is best to speak with one of our expert lenders for accurate numbers.
VA Loan: VA loans are government-backed mortgages available exclusively to veterans, active duty service members, and eligible surviving spouses. These programs offer several benefits including 100% financing with no down payment. Additionally, if you receive a VA loan it will not affect your ability to receive federal benefits such as Social Security or VA Aid and Attendance.
What are the different types of refinancing?
There are different types of refinancing options, let’s talk about two of the most common types.
Cash-Out Refinance: A Cash-Out refinance allows you to accept a higher loan balance in exchange for taking cash out of your home equity. You can take cash out of your home equity to use for personal purposes – maybe it’s paying off credit card debt, renovating your home, or putting together a college fund for your children. A cash-out refinance can be beneficial but they do carry more risk than a rate and term refinance. If the value of your home goes down, so does the amount of money that would be forgiven in the event that you need to break into your home equity.
Rate and Term Refinance: A rate and term refinance will allow you to switch to a new loan with better rates without cash-out. You can expect your payment to go down or stay the same, but know that it will be locked in for the course of your original loan length.
It’s important to understand whether a cash-out refinance or a rate and term refinance is the best choice for you. There are benefits to both, but cash-out refinancing can be riskier if your home value goes down. If the rate and term refinance make more sense for you, our expert loan officers will do what they can to help secure a rate that works with your budget.
What are the criteria I need to qualify for a refinance?
Every lender has its own standards that you must meet in order to be considered. Ask your broker/lender what they look at when refinancing, and make sure these three things are in good standing:
Credit Score: This is probably the most important factor. If your credit score is too low then refinancing will not be possible because it will not meet underwriting guidelines. A loan officer can run your credit to give you an idea of where you stand.
Debt-to-Income Ratio (DTI): Your DTI is a percentage that your lender uses to determine the amount of debt you have versus your income.
Your Equity: Equity is determined by taking the value of your home and subtracting what you owe on it.
How much equity can I take out?
When refinancing, there are several things that your lender will consider before approving the refinance.
Your equity is determined by taking the value of your home and subtracting what you owe on it. If you have 20% equity, then you would be able to take out up to 80% of that amount as a cash-out refinance. Equity can change drastically depending on how much your home has appreciated in value since purchase, so keep an eye out for changes! The one exception to this is that you can generally take out up to 100% of your equity on a VA loan if you qualify based on the qualifications set by lenders, such as good credit history and low debt-to-income ratios
How much will be closing costs be?
Closing costs are always an important factor in purchasing or refinancing a home. You must pay them to your lender when you finalize the transaction, just like with original loans — but this time they might vary depending on where you live and which lender is selected for closing purposes. The average refinance has 2% – 5%, but ask about what’s expected from yours before accepting anything! There may also be options available that allow these expenses to become part of loan principal instead; take advantage if possible.
As you can see, the process of refinancing your home is not as easy as it seems. That’s why we recommend reaching out to us for help with this process. Here at Handshake Home Loans Inc., we want to make sure that all the little details are taken care of so there won’t be any surprises later on down the line. Give our team a call today and let us take some stress off your plate. You deserve it!
Apply online or call us at 1(888) 524-4513 to learn more about our loan options. We can help you find out if you qualify for an FHA, VA, Jumbo, or Conventional loan so that we can get started right away! Visit our website right now for more information about how much money you could save by purchasing or refinancing your home with Handshake Home Loans Inc.
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