Are you looking to purchase your dream house but feeling overwhelmed by the choices when it comes to mortgages?
You’re not alone!
When deciding on what type of mortgage is right for you, many factors come into play.
From fixed-rate and adjustable-rate loans to FHA and VA loans – how do you know which one will work best for your situation?
Let’s explore the 7 main types of loans options in detail so that you can make an informed decision about what type of mortgage is right for your needs.
FHA loans are mortgages for homebuyers with low to moderate incomes that are insured by the Federal Housing Administration. The government insures these loans, so lenders are more willing to lend money to borrowers who might not qualify for the loan otherwise.
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A VA loan is insured by the United States Department of Veterans Affairs and is guaranteed to eligible veterans by the Department of Veteran Affairs. This guarantees the lender that the loan will be paid back in full should the Veteran default on the loan for any reason. These loans are popular as they offer 100% financing to eligible U.S. Veterans. They do not require monthly mortgage insurance, though a funding fee is required with these loans.
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USDA loans are mortgages offered in rural and suburban locations to home buyers with low to moderate incomes. These loans are also guaranteed by the USDA, but the USDA’s guarantee comes with much more lenient requirements than the government’s FHA program. This is due in part to the fact that USDA-guaranteed loans often go to rural homebuyers who would have a very difficult time obtaining conventional financing.
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Jumbo loans are mortgages that are higher than the limits set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that control the majority of home loans in the United States. For example, most loans guaranteed by Fannie Mae and Freddie Mac are $417,000 or lower, while most jumbo loans are $417,001 or higher. Jumbo loans are popular because they offer borrowers the opportunity to purchase more expensive homes than they could with a more common type of mortgage.
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30-Year Fixed-Rate Mortgage
A 30-year fixed mortgage has a fixed interest rate for the entire term of the loan, meaning your monthly payment will overall be the same for the entire 30 years. The monthly payments will be higher than with a 15-year fixed mortgage, but the rates are lower and the loan will be paid off sooner.
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15-Year Fixed-Rate Mortgage
A 15-year fixed mortgage has a fixed interest rate for the entire term of the loan, meaning your monthly payment will overall be the same for the entire 15 years. The monthly payments will be higher than with a 30-year fixed mortgage, but the rates are lower and the loan will be paid off sooner.
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An adjustable-rate mortgage (ARM) is a loan in which the interest rate may fluctuate based on a range of market-based indexes. ARMs typically have an initial fixed interest rate for a set period – usually between one and ten years – after which time the interest rates will adjust based on a pre-determined index for the remainder of the loan period. For the remainder of the loan, your monthly payment will increase or decrease depending on the upward or downward movement of the index. ARMs have the benefit of lower rates than fixed-rate mortgages but may carry a greater risk of increases in mortgage payments over the term of the mortgage as interest rates fluctuate.