Which type of mortgage loan is right for you?

With mortgage rates climbing, financing remains biggest piece of process when looking to purchase a home

The Vancouver real estate market continues to be more active than ever before. Purchasing a home is one of the biggest decisions a consumer will ever make, and having the knowledge to help you walk through the process – especially in a historically hot market – is essential to ensure a positive experience.

If you are not a cash buyer, financing is the biggest piece of the process when looking to purchase a home, so working hand in hand with a lender is an enormous benefit. With mortgage rates starting to climb, what does that mean for you?

Even with mortgage rates trending up, they are still comparatively low. Local lenders say that buyers should NOT be discouraged. Any rate below 6 percent is historically still good, and rates are currently in the high 4 percent area.

Mortgage rates tend to be higher when the economy is doing well. That is because inflation takes off and investors seek higher returns than mortgage bonds can offer. The mortgage interest rates must rise to keep investors interested in them at all. Hence, higher rates for home buyers.

Recent tax cuts and a booming economy have resulted in an unemployment rate of just 3.8 percent. You have to go back to the 1960s to see unemployment rates this low. Also, wages are rising the most since 2009. Right now they are rising 2.9 percent annually in many sectors. There does not seem to be any cracks in the economy, which means the growth for market prices will continue to rise and interest rates will not drop in the near future. But even those with modest incomes can find one of the three types of loans affordable.

Three types of the most common loans are: Conventional, FHA and VA.

58 percent of buyers use Conventional Loans – Pros: 1) No dollar limits; 2) Can be obtained more quickly than government insured loans; 3) No mortgage insurance required with 20 percent down. Cons: Requires more money down.

23 percent of buyers use FHA Loans – Pros: 1) As low as 3.5 percent down payment; 2) Lower credit requirements; 3) Fewer restrictions on debt to income ratio; 4) Lower interest rates. Cons: 1) Limits to the amount that can be borrowed; 2) Mortgage insurance is required (PMI).

13 percent of buyers use VA Loans – Pros: 1) Zero down; 2) Higher Debt-to-Income (DTI) ratios are allowed; 3) Lower interest rates; 4) No PMI-mortgage insurance required. Con: Must be a military veteran to qualify.

For the last 10 years, we have worked to help buyers in the Vancouver market successfully purchase their dream homes. We have strong relationships with area lenders and will help you work through the loan options and pre-qualify. Also, if you currently own a home, call us to find out how you can possibly use the equity with today’s current market values to make your next move.

Kristy Childers and Molly Hess are brokers with Coldwell Banker Bain of Vancouver East. They can be reached at (360) 903-7613.

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