Whether you are a first-time home buyer or an experienced one, you must understand the types of mortgages. In this guide, we will walk you through the numerous mortgage options and give you valuable tips on choosing the best option for your unique situation.
Conventional mortgages are the most common type of mortgage in the United States. They’re also the most popular because they give you access to a wide range of lending options, including low down payments and interest rates that can be fixed or adjustable.
Conventional mortgage loans usually require higher credit scores than other types of loans. If you want to buy a house with lower down payment requirements (say, less than 20%), this is likely your only option.
Fixed-rate mortgages are a good option for people who want to lock in a low-interest rate for a certain period and keep their monthly payments low.
With this type of mortgage, you get the same interest rate for the entire term—usually 15 or 30 years—and your lender won’t raise it during that time. If you choose a fixed-rate mortgage, you’ll know exactly how much money you’ll pay each month over the life of your loan.
Adjustable-rate mortgages (ARMs) are mortgages where the interest rate is adjustable and changes over time. The interest rate on an ARM may vary every month or every year, depending on the terms of your loan.
ARMs are often used for refinancing to lower your monthly payment or interest rate and get out of an existing mortgage when rates drop. ARMs can also be used by first-time homebuyers who need flexible financing options with low down payments.
FHA loans are insured by the Federal Housing Administration (FHA). FHA loans are easier to qualify for than conventional loans and are designed for first-time homebuyers.
FHA mortgages require a lower down payment than conventional mortgages, but you’ll still need to put some money down to get approved. The minimum FHA loan down payment is either 3.5 percent or 10 percent, depending on your credit score.
VA loans are a particular type of mortgage guaranteed by the U.S. Department of Veterans Affairs (VA). These loans are designed for veterans, active-duty military personnel, and their families who purchase single-family homes and some condominiums.
VA loans have no down payment requirement, no mortgage insurance fee, and closing costs that the borrower may pay in escrow or out-of-pocket at closing.
USDA-RD Guaranteed Loans and Loans for Single Family Housing Repair and Rehabilitation
USDA-RD Guaranteed Loans and Loans for Single Family Housing Repair and Rehabilitation are loans made available to rural residents who need to repair or rehabilitate their homes. These loans can also be used for new single-family housing construction, purchase of a home, an improvement on a home, or rehabilitation of an existing home.
We hope that we have shed some light on the different options available to you when looking for a home loan and given you an overview of what other types of mortgage loans are available.
It’s important to remember that every situation is unique. If you’re still unsure, it is always best to consult with a professional so they can help you find the right loan for your specific situation.