When it comes to purchasing a home, most buyers require a mortgage loan to finance the purchase. There are many different types of mortgage loans, each with their own set of features and advantages. It’s essential to understand the various options available to choose the right loan that suits your needs. Here are the seven types of mortgage loans every home buyer should know about:
Conventional Mortgages
These are the most common types of mortgages that require a down payment of at least 3%, but it’s recommended to put down at least 20% to avoid private mortgage insurance (PMI) payments. Conventional mortgages are available for fixed-rate and adjustable-rate options.
FHA Loans
These are government-insured loans that require a lower down payment of 3.5% and have more relaxed credit requirements. However, they come with mortgage insurance premiums that increase the monthly payment.
VA Loans
These loans are exclusively available to active-duty military personnel, veterans, and eligible family members. They offer 100% financing, no down payment, and no mortgage insurance premiums.
USDA Loans
These loans are available to buyers in rural areas who meet income eligibility requirements. They offer 100% financing, no down payment, and low mortgage insurance premiums.
Jumbo Mortgages
These loans are for high-value homes that exceed the conforming loan limit set by Fannie Mae and Freddie Mac. Jumbo mortgages have stricter credit requirements and usually require a higher down payment.
Fixed-Rate Mortgages
These mortgages offer a fixed interest rate for the life of the loan. This makes budgeting more manageable as the monthly payment remains unchanged over time.
Adjustable-Rate Mortgages (ARMs)
These mortgages offer a lower initial interest rate for a set period, usually three, five, or seven years. After that period, the rate can adjust based on market conditions, which can increase the monthly payment.
Some factors to consider when choosing a mortgage loan include the down payment amount, interest rates, credit score requirements, and monthly payment amount. By researching and comparing different mortgage loan options, home buyers can choose the best fit for their financial situation and make the home-buying process smoother and more manageable.
