While purchasing a new home is exciting, the financing side of things can get overwhelming. If you know the lingo, choosing from different mortgage loan options won’t be that difficult.
Here are the most common types of mortgages that you should know:
Conventional Mortgages
This loan type is not insured by the federal government and can be used for a primary home, secondary home, or investment property.
There are 2 main types of conventional loans:
Conforming loans: In this loan type, the loan amount falls under the maximum limits that have been set by the Federal Housing Finance Agency.
Non-conforming loans: These are loans that don’t meet the guidelines of the Federal Housing Finance Agency. The most common type is a jumbo loan.
Jumbo Mortgages
Conventional mortgage loans that have non-conforming loan limits are known as jumbo mortgages. Generally, jumbo loans require more in-depth documentation to qualify for and are more common in higher-cost areas.
Government-Insured Mortgages
While the US government isn’t a mortgage lender, it plays an important role in helping more US citizens own homes. The 3 government agencies that back mortgages are
– The Federal Housing Administration (FHA loans)
– The US Department of Veterans Affairs (VA loans)
– The US Department of Agriculture (USDA loans)
Fixed-Rate Mortgages
In this mortgage type, your monthly mortgage payment always stays the same, since your interest rate is the same over the life of your loan. Typically, fixed loans come in periods of 15, 20, or 30 years.
Adjustable-Rate Mortgages (ARMs)
ARMs have fluctuating interest rates that can go up or down depending on market conditions, unlike the stability of fixed-rate loans. However, most ARM products have a fixed rate of interest for a few years, before the loan changes to a variable rate of interest for the rest of your loan term.
When choosing an ARM, look for one that caps how much your monthly mortgage rate or interest rate can increase, so that you don’t end up in trouble financially when the loan resets.
