A mortgage is a loan secured by real estate that’s used to purchase, refinance, or renovate a home. When you secure a mortgage, you agree to pay the lender back in full over an agreed-upon period of time. There are many different types of mortgages available today, each with their own benefits and drawbacks. Knowing the types of mortgages available and which is right for you can help you make an informed decision when it comes to home ownership.
This type of mortgage is not insured or guaranteed by a government agency and follows guidelines set by two organizations, Fannie Mae and Freddie Mac. Conventional mortgages typically require a down payment of at least 5%, but this amount can vary depending on the loan amount and credit score.
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A Federal Housing Administration (FHA) loan is insured by the government and designed for borrowers with low to moderate income who may not qualify for a conventional mortgage. FHA loans require a lower down payment, usually around 3.5%, and lower credit score requirements compared to conventional mortgages.
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). It’s available to eligible veterans, active-duty military members, reservists, and their surviving spouses who have not remarried. VA loans generally require no down payment and have more relaxed credit score requirements than conventional mortgages.
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A jumbo loan is a non-conforming loan that exceeds the maximum conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans typically come with higher interest rates and require a higher down payment than other types of mortgages.
A USDA loan is a mortgage offered to buyers in rural and suburban areas by the U.S. Department of Agriculture (USDA). It’s designed to help low- and moderate-income individuals become homeowners in rural areas with little or no down payment required. USDA loans have more relaxed credit score requirements than other types of mortgages.
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Adjustable-Rate Mortgage (ARM)
An adjustable rate mortgage (ARM) is a loan with an interest rate that can change over time. ARMs usually start off with a lower interest rate than fixed-rate mortgages, but the rate can increase or decrease after a predetermined period of time. It’s important to understand how the interest rate and monthly payment can change with an ARM to decide if it’s the right option for you.
A fixed-rate mortgage is a loan with an interest rate that remains the same throughout the life of the loan. This type of loan gives you stability and predictability in your monthly payments, making it easier to budget accordingly. However, it also means that if interest rates drop, you won’t be able to take advantage of lower rates.
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