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Buyers Resources

Understanding Mortgage Options

Thinking of buying a home in Anne Arundel County? Whether you’re a first-time buyer or a seasoned pro, it’s always good to make sure you understand all the options that are available to you, before you get started. Here’s what you need to know about choosing a loan in Anne Arundel County.


Choosing an Interest Rate

There are three basic types of interest rates available: Fixed, Adjustable, and Two-Step:

Fixed Rate Mortgage:

  • Rate remains constant throughout the life of the loan
  • Payments remain the same and are very predictable

Adjustable Rate Mortgage:

  • Changed throughout the duration of the loan based on current market interest rates
  • Typically start out lower for a set duration of time, then fluctuate with the market
  • Unpredictable and can go up drastically if interest rates increase

Two-Step Mortgage:

  • Often called 5/25s or 7/23s
  • Always a 30-year loan
  • Starts out as a fixed-rate mortgage for the first 5 or 7 years, then converts to adjustable rate at the current market rate
  • May be convertible and give the option of choosing another fixed-rate loan at the current value
  • Often used by buyers planning on refinancing or selling after the initial period


Choosing a Loan Type

There are many options available to buyers these days, some of them with more strict qualifications, while others are backed by the government to assist home buyers.

Conventional Loan

  • Oldest and most common loan type
  • Typically has strict income and credit qualifications and requires a 20% down payment
  • Can be fixed rate or adjustable
  • Usually 15, 20, or 30 year duration

FHA Loan

  • Backed by the government
  • More flexible income and credit qualifications
  • Down payments as low as 3 – 5%
  • Interest rates may be higher
  • Requires mortgage insurance
  • Often used by buyers with lower income, lower down payment, or lower credit scores who have trouble qualifying for a conventional loan

VA Loan

  • Available to all military service members and veterans
  • Require as little as 0% down payment
  • More flexible income and credit qualifications
  • Insured by the VA so mortgage insurance isn’t required
  • Does require a one-time funding fee varying based on the size of the down payment

USDA Rural Housing Loan

  • Targeted to buyers searching in designated “rural” towns and areas
  • Flexible definition of rural
  • As little as 0% down payment
  • Targets buyers with “steady, low, or modest income”

Balloon Mortgage

  • Has a short loan term of 5 – 7 years but monthly payments based on 30 years
  • At the end of the term, the buyers must pay off the balance, refinance, sell, or convert the mortgage
  • Can have lower interest rates and easier qualification requirements

Shared-Appreciation

  • Buyers get below-market rates in exchange for a share of the profits at the sale
  • Lender doesn’t make money unless the buyer does
  • If the home increases in value, the buyer loses out on a lot of profit
  • Often used by buyers working with non-profit groups that help low-income families purchase homes

Biweekly Mortgage

  • Loan payments are half as much but paid twice as frequently (26 times per year)


Getting Preapproved for a Loan

Before you start shopping for homes, there’s an important first step you must take—getting preapproved for a loan. Getting prequalified for a loan helps you to understand what types of loans you’ll qualify for, how much loan you are actually able to qualify for, and, based on this information, what your actual price range should be.

Here’s How to Get Preapproved for a Loan:

  • Gather paperwork: Including credit reports, income information, W2s, tax returns, and information on any assets you may have (bank statements, etc).
  • Start interviewing lenders: Don’t simply go with the first lender you talk to. It’s important that you review the options available to you from a variety of local lenders.
  • Get prequalified: Talk to lenders about your financial situation. It’s not an official approval, but can give you a general idea of what options are available to you.
  • Get prequalified: Once you select your lender, the lender will more closely examine all your financial information and run your credit. They’ll then be able to tell you exactly which programs you qualify for, the amount you can borrow, and the interest rates you’ll be offered.
  • Get a loan commitment: Once you’re preapproved, your lender will provide written documentation verifying your ability to obtain a mortgage.


Still Have Questions About Loans or the Loan Process?

If you’re thinking of buying a home in Anne Arundel County, MD, then it’s time to contact The Gauche Team. As your local real estate guides to the area, we’re here to answer all your questions and help you buy the home of your dreams.

Anne Arundel County Real Estate Resources

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