As a homebuyer, it is important to know about your options when looking for a home loan. This process can be tricky and deciding what is going to work best for you and your situation is not always that clear. It is important to do your research in learning the pro’s and con’s for all the option but also consulting a professional Lender to help you make the right choice. There are 7 types of loans to learn about.
The most popular types of mortgages are the:
-Fixed Rate Mortgage
-Adjustable Rate Mortgage
But there are also other types such as:
Each of these mortgages have different requirements, pros, and cons that you should be aware of.
A conventional mortgage is a mortgage that is not insured or guaranteed by the government such as FHA, VA, USDA, and Freddie Mac/Fannie Mae. This mortgage typically has better terms than other mortgage types and is available to those with good or excellent credit. The down payment for this mortgage type can be anywhere from 0%-20% but is usually around 20%.
A fixed rate mortgage (FRM) means exactly what it sounds like- your interest rate will stay the same for the entire life of the loan. This option may be appealing to some homebuyers because they know what their monthly payments will be for the duration of the loan. This mortgage is available to those with good credit and usually requires a down payment of around 20%.
An adjustable rate mortgage (ARM) is a mortgage where the interest rate can change during the life of the loan. The initial interest rate on this type of mortgage is typically lower than a fixed-rate mortgage, but it can go up (or down) depending on the market conditions at the time. This mortgage is available to those with fair or average credit and usually requires a down payment of around 0%-20%.
FHA loans are mortgages that are insured by the Federal Housing Administration. FHA loans are popular among first-time homebuyers because they have more relaxed requirements than other types of mortgages. For example, FHA loans allow you to put down as little as 0%- mortgage insurance is required, but it can be cancelled after the loan has been paid in full for a period of time.
VA loans are mortgages that are insured by the Department of Veterans Affairs. These loans are available only to veterans, active-duty service members, and their spouses. VA loans offer some great benefits such as no down payment requirement and no mortgage insurance premiums.
USDA loans are mortgages that are insured by the United States Department of Agriculture. These loans are available only to those who live in rural areas or small towns. USDA loans have very relaxed requirements- for example, there is no minimum credit score requirement and you can borrow up to 103% of the home’s value.
Jumbo loans are mortgages that exceed the loan limits set by Fannie Mae and Freddie Mac. These loans are for those who need a large mortgage amount- typically $417,000 or more. Jumbo loans have more relaxed credit requirements than other mortgage types and may offer a lower interest rate.
No matter which mortgage type you decide to go with, it is important to consult with a professional Lender to see if you qualify and what the best option would be for you. Buying a home is one of the biggest decisions you will make in your life, so take your time and do your research!