Buying a home on O’ahu and want to make sure you understanding all your financing options before you start loan shopping? It’s definitely a good idea to make sure you’re in the know before you start comparing facts, figures, rates, and stipulations! Here’s what you need to know about the mortgage options available on O’ahu.

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Loan Term

First, select the term of your loan. Loan term refers how long you’ll be repaying the loan and directly affects your interest rates, how much interest you’ll pay over the life of the loan, and what your monthly payments will be. There are many different loan terms available, from 5 to 30 years, though 15 and 30-year mortgages are the most common terms.

Interest Rate Type

The interest rate type indicates whether your interest rate will change or stay the same throughout the term of the loan, and what the rate will be.

Fixed Rate Mortgage: With a fixed rate mortgage, your interest rate is determined based on market rates and your credit, and remains the same throughout the life of your loan. They’re predictable and safe and typically chosen by those who want to stay in their home for a while.

Adjustable Rate Mortgage: With an ARM, the interest rate fluctuates throughout the life of the loan based on the current market rates. Often, they start out much lower than current rates and reset to market after a certain period of time, such as a year, 6 months, or a month. These are good if interest rates are falling, if you plan to sell your home before your interest rates can climb, or if you predict an increase in your income.

Hybrid (Two-Step) Mortgage: These start at a fixed rate loan and after (usually) 5 or 7 years will convert to an adjustable rate mortgage. They’re good if you’re planning to sell your home before the fixed period ends.

Loan Type

The type of loan you choose will depend on various criteria, such as your credit and income, your location, and your specific needs.

Conventional: This is the most standard loan, privately funded through banks, credit unions, or other lenders. These loans have fairly strict credit and income requirements and usually require a 20% down payment.

FHA: This government-backed loan is tailored to those with lower income or credit, as it has more flexible down qualifications and down payment options (usually as low as 3-5%). However, it does require mortgage insurance, and interest rates can be higher.

USDA: Backed by the US Department of Agriculture, this loan is targeted for rural borrowers meeting certain income requirements.

VA: Specific to active, reserve, and veteran military personnel, this type of loan is backed by the VA but still funded through a private borrower. For military, it’s a great option for low down payments (as low as 0%) and lower qualifications. It does require a one-time funding fee varying on the size of the down payment, and the VA requires that homes be inspected before purchase.

Balloon: Balloon mortgages are short-term mortgages with monthly payments based on a 30-year term. At the end of the short term, the buyer must pay in full, sell the house, or convert the mortgage. Buyers will pursue this option to get lower interest rates.

Shared-Appreciation: The interest rate on a shared-appreciation home is lower, but when you sell your home, you share any profits with the bank.

Biweekly: Pay half the amount twice as frequently. It cuts down on the amount of interest you’ll pay, but does come with the hinderance of having to make two monthly payments.

Still Have Questions About Loans or Homebuying on O’ahu?

If you’re thinking of buying a home on O’ahu, then it’s time to contact RE/MAX Honolulu. We’ve got answers to all your questions, from VA financing to first-time buyer assistance. Give us a call today or start exploring some of the other home buying resources we provide.

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