Know Your Home Loan Options: 6 Types of Mortgages for Homebuyers
Home loans come in various types, each with its own advantages and disadvantages. This article reviews 6 of the most common mortgage types.
Realtyless
4 minute read
Know Your Home Loan Options: 6 Types of Mortgages for Homebuyers
Buying a home is one of the biggest financial decisions that you may make in your lifetime. Many people require a home loan or mortgage to make the purchase due to the large financial value. Home loans come in various types, each with its own advantages and disadvantages. In this article, we'll go over the most common types of home loans available.
Fixed Rate Home Loans:
A fixed-rate home loan is one of the most common types of home loan. In a fixed-rate loan, the interest rate remains the same throughout the loan's term. This means that your monthly payment will remain constant, regardless of fluctuations in the economy or interest rates. This type of loan makes it easier to budget and plan for your future knowing you have a low rate locked in for the entire time you’re paying off the loan. The downside is it has higher rates than the introductory rate from an ARM (see below). Fixed-rate home loans typically have a term of 15 or 30 years.
Adjustable Rate Mortgages (ARMs):
An adjustable-rate mortgage, or ARM, is a home loan where the interest rate fluctuates over time. Typically, the interest rate is fixed for an initial period of time (3, 5, 7, or 10 years) and then the rate will adjust annually depending on market conditions. Once the lower introductory rate period is over, your rate could increase. This can cause your monthly payments to go up. But, if rates go down when your ARM adjusts, you could save even more. ARMs are a good option for those who plan on selling their home or refinancing before the initial fixed-rate period ends because the introductory rate is lower than a fixed-rate home loan. ARMs may also be a good option if you are applying for a mortgage at a time when interest rates are high. However, if interest rates are low, you may save more money with a fixed-rate mortgage.
FHA Loans:
FHA loans are mortgages that are insured by the Federal Housing Administration. These loans are designed for low-to-moderate-income borrowers and require a lower down payment than conventional loans. However, borrowers are required to pay mortgage insurance premiums throughout the life of the loan.
VA Loans:
VA loans are guaranteed by the Department of Veterans Affairs and are available to active-duty military members, veterans, and eligible surviving spouses. These loans have low or no down payment requirements and do not require mortgage insurance. The Department of Veterans Affairs guarantees a portion of the loan which allows lenders to provide more favorable terms. VA loans may have lower interest rates and closing costs but do have a funding fee, property restrictions, and less flexibility in waiving contingencies.
USDA Loans:
USDA loans are designed for low- and moderate-income homebuyers living in rural areas. The loans are backed by the US Department of Agriculture and offer low down payment options.
Jumbo Loans:
Jumbo loans are home loans that exceed the maximum loan limits set by Fannie Mae and Freddie Mac. These loans are typically used to purchase luxury homes and require a higher down payment and credit score than conventional loans.
Conclusion
Understanding the different types of home loans available to you is essential when considering purchasing a home. It is important to choose the right loan for your financial situation. A qualified mortgage professional can help you navigate the different options and choose the right loan for you. When you use Realtyless as a homebuyer, you can easily compare rates from up to 3 local mortgage loan officers to secure the best financing option tailored to you.