House Hunting? Learn About Your Mortgage Options
If you are in the process of house hunting and searching for the right mortgage, refer to our earlier blog post for steps to take before applying for a mortgage. Part of this preparation process is knowing what types of loans are out there and which mortgage type is right for you and your family.
A fixed-rate loan is the most popular mortgage option in the United States, making up 75% of all loans taken out for financing a home. This home loan has a fixed interest rate that stays the same throughout the entirety of the loan. For this reason, fixed-rate loans are very predictable. They allow borrowers to budget and plan out exactly how much they will owe each month.
However, the flip side of a fixed rate loan is when interest rates drop, the rate on your loan will not change, as it is locked in for the entirety of the loan term.
Fixed-rate loans have longer terms, typically somewhere between 15 to 30 years. Borrowers can also make early or additional payments on these loans without any penalty to help decrease the amount of interest that accrues.
Adjustable-rate loans, also called variable-rate loans, are characterized by a fluctuating interest rate. The rate typically starts out low and may change periodically to reflect current interest rates. The interest rate can change over time.
Because the initial interest rate of the loan is lower than that of a fixed-rate loan, it’s typically easier to qualify for a larger adjustable-rate loan due to the lower initial payments. It’s important that borrowers of adjustable-rate loans are prepared for the interest rate increases, as they can be substantial. Preparing for any increases that may occur any time after the introductory period will help you stay in control of you mortgage.
The FHA loan is one of a few government-insured loan options. Many first time homebuyers qualify for a Federal Housing Authority backed loan. These home loans have less rigid borrowing requirements, including:
- Down payment as low as 3.5%
- Reasonable credit expectations
- More flexible income requirements
- Includes mortgage insurance
The property financed with an FHA loan must be the primary residence and be occupied by the owner. This mortgage type cannot be used for investment or rental properties.
Other Mortgage Options
While these aren’t the most popular mortgage types in the United States, there are a couple of different types of mortgages you should be aware of:
- VA Loan: This loan type is backed by the Department of Veterans Affairs and provides long-term mortgage options for eligible veterans and their spouses who are looking to refinance their homes.
- Jumbo Loan: This is a mortgage loan that may have high credit quality, but is an amount that exceeds the federally established loan limit.
Discuss Your Options With Us & Get Started
Knowing the most popular mortgage types available helps give you an idea of what home loan options could be right for you. To ensure you’re choosing the right mortgage to finance your home, contact us today! We can help talk you through the different types of mortgages so you can make an informed decision.