Whether you’re shopping for your forever home in Charleston or looking to purchase a home for future vacation rentals in Isle of Palms, securing the proper financing is a major step in the process. There are an infinite number of loans and lenders available, which can make the process that much harder. Sifting and sorting through the information is a necessary yet tedious procedure in guaranteeing that you choose the loan that is right for you. Here, we discuss the major 6 major categories of loans available in South Carolina in hopes to break down the information in an easy-to-digest- format for potential Charleston, SC homeowners.
Fixed-Rate vs Adjustable-Rate
All available loans fall into one of these two categories. A fixed-rate mortgage loan has the same interest rate for the entire repayment period of the loan. This means your monthly payment will stay the same, even for long-term financing options. The most common form of a fixed rate loan is a 30-year term, as the monthly payment is typically lower; however, there are other yearly terms that available for most loans. Currently, as it stands for mortgage rates on Isle of Palms, the interest rate on a 30-year fixed loan is 3.88% (3.92% APR). This is in line with the national average. On the other hand, an adjustable-rate loan has a fluctuating interest rate that changes over time. This interest rate typically changes on a yearly basis. A hybrid version of the two loans is available. Often called a “Hybrid ARM” or “Hybrid Mortgage”, this initially starts as a fixed interest rate for a specified number of years and then switches to an annually adjustable rate for the remainder of the loan’s life. A 5/1 ARM in Charleston is 2.75% (3.74% APR).
Conventional vs. Government-Insured
Within the categories of fixed-rate and adjustable-rate are another set of loan types that determines who backs the loan. You can combine these loans (i.e. fixed rate conventional or an adjustable government-insured). Conventional loans are home loans that are not insured or backed by the government. Government-insured loans are financing that is insured and guaranteed by the government. This includes FHA Loans, VA Loans, and USDA/RHS Loans.
· FHA Loans: Backed by the Department of Housing and Urban Development, the Federal Housing Administration (FHA) mortgage insurance program is a loan available to all homeowners. Borrowers pay for mortgage insurance, which protects the lender from a borrower default. To receive this loan, a home must meet certain requirements that are reviewed by a South Carolina licensed appraiser.
· VA Loans: The U.S Department of Veteran Affairs provides a loan program for military service members and their families. Borrowers can possibly receive 100% financing for the purchase of their home, resulting in no down payment.
· USDA/RHS Loans: Provided to homeowners in rural areas, the United States Department of Agriculture offers a loan to certain borrowers who meet a specific income requirement.
Jumbo vs. Conforming
When considering loans, another distinction that can be made is the size of the loan that you are requesting. Depending on the intended borrowing amount, your loan can fall within a conforming loan or a jumbo loan. A Conforming loan meets the underwriting guidelines that have been set forth by Fannie Mae and Fannie Mac. This limits the size or amount of the loan and affects the size of the down payment and the debt-to-income ratio amongst other factors. On the other hand, loans that do not fall within the parameters of a conforming loan are considered to be “non-conforming” loans. However, if the specific issue involved in not meeting the guidelines is due to the size of the loan, then the loan is considered a jumbo loan. Jumbo loans exceed the amount set by Fannie Mae and Fannie Mac. Interest rates are typically higher, which means most jumbo loan borrowers must have good standing credit and be able to afford larger down payments. For many Charleston, SC residents, a jumbo loan is more ideal. Charleston, SC boasts a number of luxury homes that fall out of the range to procure a conforming loan. This is typical for coastal towns, especially those in Charleston, SC, that tout larger price tags.
Securing the proper financing for your Isle of Palms home shouldn’t be hard. We hope that with this simple breakdown of what to look for, you can find a little sense of relief when searching for your new home.