One of the most important choices you’ll have to make when buying a home is selecting the right mortgage. There are many different types of mortgages, and each has its own specifications, terms, and features. Understanding your options is essential if you want to make a wise decision. The following is a brief list of some of the most popular mortgage types:
1. Conventional loan: An unbacked mortgage is referred to as a conventional loan. These loans frequently have more stringent requirements, like a higher credit score and down payment.
2. FHA loan: A mortgage that is insured by the Federal Housing Administration is referred to as an FHA loan. These loans often have less strict requirements, including a lower credit score and down payment.
3. VA loan: The Department of Veterans Affairs guarantees a VA loan, which is a mortgage. Veterans, active military personnel, and some military families are eligible for these loans. They often have less stringent requirements and no down payment.
4. USDA loan: A USDA loan is a mortgage that the US Department of Agriculture guarantees. These loans are intended to support home purchases in rural areas by low-income borrowers. They often have less stringent requirements and no down payment.
5. Jumbo loan: A jumbo loan is a mortgage that is larger than the maximum loan amount permitted by government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac. These loans often have stricter requirements, such as higher credit scores and down payments.
6. An adjustable-rate mortgage (ARM) is a kind of mortgage in which the interest rate varies over time. A benchmark rate, such as the London Interbank Offered Rate, serves as the basis for periodic adjustments once the interest rate has been fixed for a while (LIBOR).
Mortgage with a fixed rate is one where the interest rate is the same for the duration of the loan. Although these loans have predictable monthly payments, their interest rates are often higher than those of ARMs.
Mortgage in which the borrower only makes interest-only payments for a certain length of time is known as an interest-only mortgage. The borrower is then required to begin making principle and interest payments.
9. Balloon mortgage: This type of mortgage requires the borrower to make a series of smaller payments over time, with the remaining debt due in full at the conclusion of the loan term.
10. Reverse mortgage: With a reverse mortgage, the borrower can access the equity in their property and continue to live in it while still receiving regular payments. When the borrower passes away, sells the house, or vacates, the debt becomes due.
Because there are so many different mortgage packages out there, it’s important to compare your alternatives and shop around. You can also decide what action is best for your particular needs and qualifications by consulting with a mortgage lender or financial advisor.