As a potential home buyer, you want to be a smart shopper and make the best financial decision for you and your family. Buying a home is a huge step to which you will be committed for years to come. The types of mortgage loans that are available to you can be a little confusing, because there are many options. The following is a guide to the different types of home loans.
First, you’ll need to decide whether you need a conforming loan or jumbo loan. As suggested by the names, these options simply have to do with the amount of money you will be borrowing.
Conforming loan – this type of loan conforms to Fannie Mae or Freddie Mac guidelines, meaning that they conform to a national loan limit. This limit is currently set to $424,100. This type of loan usually carries lower fees and interest rates for the borrower.
Jumbo loan – this type exceeds the monetary guidelines set by Freddie Mac or Fannie Mae. Because of this, they are considered higher risk, have larger down payments and require pristine credit.
Additionally, you can choose between fixed rate loans vs adjustable rate loans.
Fixed rate loan – this type is exactly what it sounds like. The interest rate stays the same during the entire term of the loan, no matter how long the loan is set for. Each monthly payment will be exactly the same.
Adjustable rate mortgage loan (ARM) – this type of loan initially starts out with a low fixed rate for a certain amount of time – say, five years. After that time is up, however, the rate can go up every year.
Lastly, you’ll choose between a conventional loan or government-insured loan.
Conventional loan – this type of loan is not insured by the government in any way.
Government-insured loan – this type of loan is backed by the government, and it insures borrowers against borrower default. There are multiple different types of government-insured loans, including:
- USDA loan – this is a loan program offered by the United States Department of Agriculture, and it’s available to borrowers who are looking to buy a home in a rural area. To meet the criteria, borrowers cannot make a yearly income over a certain amount.
- VA loan – this type of loan is available to military service members and their families. The borrower is eligible to receive up to 100 percent financing and is allowed to put a zero down payment on the home. The borrower is not responsible for any default on the loan – the VA takes that responsibility.
- FHA loan – this type of loan is offered by the Federal Housing Administration. Any potential home buyer can take advantage of this type of loan. It boasts a very low required down payment, but the borrower is required to pay for mortgage insurance, which makes the monthly payments steeper.
There you have it! If you have any questions at all about the different types of mortgage loans, don’t hesitate to contact us or set up an appointment. We are happy and ready to help!