The Different Types of Mortgages & How to Decide Which is Right for You
Different Types of Mortgages and How to Decide Which is Ideal for You
Before making a commitment, it’s essential to identify which mortgage type is most suitable for your needs. Working with a local real estate agent or Home Loan Expert who can assist in shopping around and finding the best loan possible could be beneficial.
These are the most popular type of mortgage, featuring a consistent interest rate throughout its entirety. A fixed rate mortgage offers more stability than adjustable-rate mortgages (ARMs), in which interest rates may change during repayment.
Arms can be more complex than fixed-rate mortgages, as they alter your payments periodically throughout the loan term. But they could be a good option if you’re comfortable with having your payment amount adjusted annually and want to take advantage of low fixed rate interest rates before they increase again.
Conforming mortgages are issued by government-backed entities like Fannie Mae and Freddie Mac, so they must abide by their guidelines. While conforming loans typically offer lower interest rates and fees than nonconforming loans, you may still have limits placed on how much you can borrow.
Jumbo mortgages are ideal for buyers who require larger loans than what the federal limits allow or have special financial circumstances. While they usually carry higher interest rates than other kinds of loans, they’re easier to qualify for and may offer more affordable payments than nonconforming mortgages.
Special mortgages provide homebuyers with a range of features that may be advantageous. These include lower down payments, less money up front and greater flexibility in repaying the loan.
A 30-year fixed rate loan is a popular type of conventional mortgage available to people with excellent credit and an impressive debt-to-income ratio. While these loans usually require a down payment of 20% or higher, lenders now accept down payments as low as 3% for qualified borrowers.
If you’re a first-time homeowner, an FHA loan may be suitable with lower down payments and a shorter loan term. However, these mortgages have stricter qualifications than other kinds of mortgages so having good credit score is necessary in order to be accepted.
If you don’t have much money to put down or your credit isn’t perfect, a nonconforming mortgage may be available. Since these mortgages don’t meet the same standards as other loans, they may come with higher interest rates and fees.
They may be ideal for people with large cash savings or income that fluctuates significantly month to month, as well as those receiving annual bonuses that could be put towards paying down the principal balance on their mortgage. Furthermore, these loans may benefit those who have a low down payment and don’t plan to stay in their homes long.