Mortgages in Buffalo, NY: What to Know

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What you should know when you take a mortgage?

mortgages in Buffalo NYWhether you are buying your first or fifth home, you need to apply for a mortgage, and that can be quite stressful. You can easily become overwhelmed with the many home loan options out there.

Therefore, it is best to know as much as you can about the process first. That makes it easier to choose the right option based on your needs.

Common mortgage types you might run into can include:

 

  • Conforming loans
  • Conventional loans
  • Fixed-rate loans
  • Nonconforming loans
  • Government-insured loans
  • Adjustable-rate loans
  • Piggyback loans
  • Interest-only loans

What Types of Mortgages Are There?

There are some things you should consider about the most popular home loan types, which can overlap at times.

Conforming Loans

buffalo new york property flagA conforming loan has to follow certain rules that are set by the government, as well as government-sponsored entities, such as Freddie Mac and Fannie Mae. These agencies provide the backing for these conforming loans.

In 2019, a conforming loan had a standard limit of $484,350 for single-family homes in many markets, with up to $726,525 in areas considered to be high cost. Other requirements included:

  • Credit scores of 620 or better for fixed mortgages; 640 or better for adjustable-rate mortgages
  • Debt-to-income ratios of 36 percent or lower, sometimes up to 50 percent in some situations
  • Down payment of five percent with many loans, sometimes three percent in certain situations

Conforming loans are often less risky for the lenders, so they could offer better terms than a nonconforming loan.

Conventional Loans

You’ve probably heard of the conventional loan, which is the most popular home loan available. These include any mortgages that aren’t part of governmental programs.

The conventional loan is the default one, in most cases. It’s the most common program available. However, you can find other good options, depending on your situation and needs.

Fixed-rate Loans

rate fix loan buffalo nyThe name implies what the loan is, which is one that has a fixed interest rate. Therefore, the interest and principal payments don’t change for the lifetime of the loan.

The rates on these loans usually start out higher when compared with their adjustable-rate counterparts. However, you get the benefit of knowing that is your rate until the loan is paid off, you refinance, or you sell.

If you plan to stay in your home for a while, it’s best to choose a fixed-rate loan. You may also want to consider this option if you’re worried about fluctuating payments. Often, fixed-rate mortgages have terms of 15 or 30 years.

Nonconforming Loans

real estate agency in buffalo and Niagara, NYThese are conventional loans that don’t follow one or multiple standards necessary to be conforming loans. Often, the most common one is the jumbo loan because it exceeds the standard limit amount for a conforming loan. Generally, jumbo loans have stricter requirements, such as higher down payments and credit scores, as well as a lower debt-to-income ratio.

If your credit scores don’t meet the requirements, you might still find nonconforming loans available if you have unusual circumstances, or you are self-employed.

It is best to choose a non-conforming loan if your financial situation or loan amount doesn’t meet the conforming standards set up by Freddie Mac and Fannie Mae.

Government-insured Loans

Buffalo Niagars Realty GroupSome mortgages are backed by a government agency. They have special eligibility requirements and features, which can make them a better choice for particular homebuyers.

  • FHA Loans. These loans are backed by the FHA (Federal Housing Administration). They help you get into a home with lower credit scores than conforming loans. You could qualify for a down payment of 3.5 percent if you have a credit score that is 580 or higher. Some qualify for a 10 percent down payment with a credit score of 500. However, keep in mind that these loans charge ongoing and upfront mortgage premiums that are hard to shake. Only consider this option if your score can’t get you a conventional loan.
  • VA Loans. Such loans are insured by the US Dept. of Veterans Affairs and are available to some members of the military, as well as beneficiaries and spouses. They don’t require specific credit scores or down payments, and you don’t have ongoing insurance premiums. However, you do have an upfront funding fee. If you qualify, it can be a great choice, but make sure you compare it to other loans.
  • USDA Loans. The US Dept. of Agriculture offers these loans. You could qualify if you plan to buy a house with a low to moderate-income and in an eligible rural area. There are no down payment requirements, and some people only need a credit score of 580 or lower. However, there is an annual and upfront fee, which never goes away. Consider this option if you want to live in a rural area.

 You can also find state government mortgage programs. Each state has a housing finance agency, but they are all different in how they handle these loans.

Adjustable-rate Loans

These loans usually start with a low and fixed rate for a specific period of time (often three to five years but sometimes up to 10). Afterward, the interest rate decreases or increases annually, depending on market rates at the time.

Sometimes, adjustable-rate loans set limits on how low or high the rates can go for the year and life of the loan.

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Generally, these loans are less expensive upfront than a fixed-rate one. However, if you plan to stay in the home longer than your initial fixed-rate time, you must make sure that you can afford higher payments or refinance to the fixed-rate option.

Adjustable-rate loans can be worth it if you plan to live in the house just a few years, or you believe you can refinance before the adjustable time ends.

Piggyback Loans

piggy bank buffalo nyThis loan helps you avoid private mortgage insurance on conventional mortgages without putting down 20 percent. The drawbacks here are that you have to refinance separate loans later, which is hard. That second loan could have variable interest rates, too.

Interest-only Loans

This type of loan ensures that you pay interest for a specific amount of time, up to 10 years. Once that ends, you can refinance, pay off the loan with a lump sum, or make regular payments like always.

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