Types of Mortgages You Should Know Before You Buy a Home
Do you want to buy a home? Thinking about your down payment and how you will finance your new home?
If you’ve already started looking at mortgage and financing options and terminology, you’re on the right track! A mortgage is one of the biggest decisions you’ll make as you buy your home, so you want to ensure you’re satisfied with your choice. Don’t feel overwhelmed by the mortgage options available.
This simple guide breaks down the different types of mortgages and how they work so you can make a clear decision.
Conventional Mortgages
A conventional mortgage is one of the most commonly used types of mortgages and is ideal for homebuyers with good credit and a smaller down payment. The funding for these mortgages is provided by a lender and is secured by a government-sponsored enterprise like Fannie Mae or Freddie Mac.
Conventional mortgages have some of the lowest interest rates and closing costs, making them an attractive financing option for many people. These loans are ideal for those with a stable income, good credit score, and healthy debt-to-income ratio.
Adjustable-Rate Mortgages
Adjustable-rate mortgages are the type of mortgages that give borrowers the ability to benefit from initially lower interest rates. Their rates adjust at regular intervals. The initial rate usually lasts two, three, five, or even seven years and then adjusts either upward or downward depending on the state of the economy or the guiding index rate.
This type of mortgage is a great option for those who plan to stay in their home for a shorter term or anticipate a future financial uptick that will allow them to take advantage of the adjustable rate.
Fixed-Rate Mortgages
A Fixed-Rate Mortgage is one of the most common types of mortgages available on the market. It is a loan with an interest rate that doesn’t change for the life of the loan. The payments remain the same throughout the loan, allowing you to make accurate projections of how much you will pay each month.
Fixed-Rate Mortgages generally require a higher down payment than other mortgages, and the interest rate is usually higher than an adjustable-rate mortgage.
Government Insured Loans
Government-insured loans are an important type of home mortgage you should be familiar with before purchasing a home. They come with guarantees provided by the federal government and are the most popular mortgages in the United States.
These government-insured loans are FHA, VA, and USDA loans. The Federal Housing Administration (FHA) provides a loan that covers 96.5 percent of the property costs and a low down payment. Veterans Affairs (VA) provides a loan with 100 percent financing and no down payment if you are a veteran or an active-duty military member.
Make sure to choose which type of mortgage is right for you when getting a home loan.
Explore the Types of Mortgages Today
Mortgage types differ based on a loan duration, down payment, rate type, and more. Taking the time to understand all the types of mortgages is paramount, as it will help you decide which one is best for you.
Make sure to consult with an experienced mortgage lender to ensure you understand all your mortgage options. Start the process today! Did you find this article helpful? Check out the rest of our blog for more!
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