The process of financing a home can be challenging, even for buyers who have purchased property in the past. Whether you're a first-time homebuyer, moving up, or downsizing, Space Coast Credit Union (SCCU) offers a variety of mortgage options for your home purchase. To help you navigate the process, we've put together this guide to mortgage loans
, including the types of financing available, tips on choosing the best mortgage lender for you, and more!
The Advantages of Home Ownership
What comes to mind when you think of owning a home? Having the freedom to design, decorate, remodel, or renovate? These are some of the obvious benefits of being a homeowner, but the advantages go well beyond aesthetics.
If you're just starting to consider becoming a homeowner, here are just a few of the benefits:
- Homeownership can help you build wealth. Historically, home values rise over the long term, so if you plan to retain ownership of your home for many years, you should see a significant return on your investment!
- You also build home equity with every monthly mortgage payment. Every time you make a payment, part of it goes toward reducing the principal amount you owe on your mortgage.
- A good record of making your mortgage payments on time can improve your credit score. That can translate into other financial benefits, such as qualifying for the best rates on other types of loans.
Types of Home Loans
Mortgages are not one-size-fits-all. Several factors will influence the type of home financing that's right for you, such as how long you plan to stay in the home, your down payment amount, what specific type of property you're seeking, and more. Here are the most common types of home loans and who they’re right for:
Many people ask, “What is the most common type of home loan?” The traditional, fixed-rate mortgage is the answer. This loan may be right for you if you expect to remain in your home for at least five years and want to have the most predictable principal and interest payments you can get. At SCCU, our 30-year fixed-rate mortgage and 15-year fixed-rate mortgage
are popular choices. These conventional mortgage loans
also give you the option of making additional principal payments with no prepayment penalty, which can save you more money in the long run.
When you're building a brand-new home, a construction loan is used to pay the home builder. With a construction loan in place, your lender makes payments to the builder in increments as each stage of construction work is completed. Upon completion of the home, your construction loan will be converted into a standard mortgage
that you chose before construction began.
An adjustable-rate mortgage—also referred to as an ARM or variable-rate mortgage—is a loan that has an interest rate that can go up or down. Typically, the loan starts with an interest rate that's lower than the interest rate on a similar fixed-rate mortgage for a specified time period. When that period of time expires, the interest rate may change, which will affect the amount of your monthly payment. Learn more about how they work here
If you’re looking to purchase a Florida condominium, lenders usually have special requirements of the condo property and association. These guidelines are addressed with a special condo loan. This loan may suit your financial needs best if you desire the carefree convenience of condo living or are considering a condo as a second or vacation home.
A jumbo home loan allows you to finance your once-in-a-lifetime home and enjoy the luxuries of Florida—whether it be waterfront living, tropical estates, or a bird’s eye view of the city. This loan may suit your financial needs best if you are looking for a higher loan amount with a competitive interest rate.
These mortgage loans give homebuyers a more accessible avenue to homeownership:
These loans are insured by the Federal Housing Administration (FHA), which does not lend money, but backs lenders should the borrower default on the mortgage. FHA home loans offer affordable down payments—as low as 3.5% for some borrowers16
—and are often good choices for homebuyers with less-than-perfect credit. Keep in mind that FHA loans have some detailed requirements and restrictions
As part of the GI Bill of 1944, our nation's veterans, widowed military spouses, and active duty service members can apply for a VA home loan to purchase a home. At SCCU, our VA loans
offer a range of benefits, including up to 100% financing16
, no private mortgage insurance (PMI) requirement (with certain qualifications), and the same great interest rate regardless of credit score.
Additional Home Loan Options to Save More Money
If you’d like to save more money on your down payment or closing costs, check out these options:
We offer exclusive home loan options and rates for heroes: educators, medical professionals, first responders, law enforcement, military personnel, and Department of Defense/government contractors. More about HERO Loans here
This option greatly reduces the amount of money you need at closing because it covers your third-party charges and waives lender origination fees. It’s available on several of our mortgages—an SCCU Team Member will be happy to provide more details. Learn more here
If fronting 20% for a home isn’t exactly doable, this option is available with select home loan types and puts homeownership within reach—ideal for first-time homebuyers.
If you’re a first-time or hero homebuyer, then you could be eligible for funds in housing assistance (certain conditions apply).
What Mortgage Lenders Will Consider
A mortgage loan is a significant transaction on both sides of the table: It's likely the largest purchase most consumers will ever make, and lenders need to see the right financial indicators in order to extend a large amount of money to borrowers in the form of a mortgage loan. So, what do lenders look at when you start the application process? Here are the main factors:
- Credit: When lenders see that you have a solid history of paying your bills on time, it's a positive sign that you’ll repay your new mortgage loan on time. They will also obtain your credit score and full credit history to ensure there are no red flags. Because different types of loans can have different credit score requirements—and credit scores often affect the interest rate for which you qualify—be sure to ask potential lenders how your credit score will factor into your mortgage loan options.
- Income: In addition to having a history of paying bills on time, having the means to make your mortgage payment is, of course, essential. Lenders will want to see that you currently have sufficient income from a reliable source and an expectation that you will maintain sufficient income in the future.
- Assets and liabilities: Even with a steady income and great credit score, lenders will still want to evaluate your bigger financial picture, which includes the assets you have on hand and the debts you owe, such as car payments and credit card balances.
- Debt-to-income ratio: This ratio is the total of all of your monthly payments on debts divided by your gross (not net) monthly income. Higher debt-to-income ratios can be an indicator that a borrower may have difficulty making monthly mortgage loan payments in the future, but each lender will have its own specific requirements to qualify for their mortgage products.
Pre-Approval vs. Pre-Qualification
While some may use these terms interchangeably, each lender may have its own definition of pre-approval and pre-qualification. In general, however, pre-qualification comes first, followed by pre-approval. Pre-approval usually requires you to provide more in-depth information about your finances, such as tax records and proof of income.
At SCCU, we’ll assist you in getting pre-approved for a home loan, which will result in giving you documentation that demonstrates to sellers and agents that you have the credit needed for a successful real estate transaction. One advantage of this is that you may have an edge over other interested buyers since your pre-approval status can be an indicator that the transaction will go more quickly and smoothly with you.
We offer fast mortgage pre-qualification decisions
, both online and over the phone.