There are many different types of mortgage loans available to homebuyers. Trying to figure out which loan is the best for you can be confusing. This blog post will discuss the most common types of mortgage loans and what each entails. We will also help you understand which loan is the best for your specific needs.
Conventional Loan
A conventional loan is a mortgage that the government does not back. These loans are available through banks and credit unions. Conventional loans typically have fixed interest rates and terms. They can be either conforming or non-conforming. One benefit of a conventional loan is that you can put down as little as five percent for a down payment. However, you will likely have to pay private mortgage insurance (PMI) if your down payment is less than 20 percent.
Jumbo Loan
A jumbo loan is a mortgage with a higher amount than the conforming limit set by the Federal Housing Finance Agency (FHFA). The FHFA does not back jumbo loans and thus, requires private mortgage insurance (PMI) or a larger down payment. A jumbo loan may be the only option for homebuyers in high-cost areas to purchase a home.
Government-Insured Loan Programs
The most common type of mortgage loan is the conventional loan, which the government does not back. However, the government supports other kinds of loans, such as FHA and VA loans. These government-insured loan programs can offer better terms and interest rates than conventional loans, making them a good option for homebuyers with good credit.
Fixed-Rate Mortgage
The most popular type of home loan is the fixed-rate mortgage. This type of loan has a fixed interest rate that does not change over the life of the loan. The monthly payments are also fixed, so you know exactly how much you will pay each month. Fixed-rate mortgages are available for 15, 20, or 30 years. The main advantage of a fixed-rate mortgage is that you can budget your monthly payments because they will not change over the life of the loan. You also know that your interest rate will not increase if interest rates rise.
Adjustable-Rate Mortgage
The interest rates on an adjustable-rate mortgage (ARM) change over time. The initial interest rate is typically lower than that of a fixed-rate mortgage, but it may go up or down depending on the state of the market. If you only want to live in your house for a short while or if you anticipate a rise in your income in the future, this type of loan can be a smart choice. As you can see, many different types of mortgage loans are available to homebuyers.
It is important to research and determine which loan is the best for your specific needs. A mortgage lender can help you understand all of your options and find the best loan for you.…