Before searching for the right home, you need to know first the types of mortgages available for you. This will help you decide to finally make that dream house a reality.
5 types of mortgage loans for homebuyers
1. Conventional loans
A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower
If you have a good credit score, this can be the best pick for you. The 30-year, fixed-rate conventional mortgage is the most popular choice for homebuyers.
2. Jumbo loan
A jumbo loan, also known as a jumbo mortgage, is a type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA).
If you are looking to buy an expensive home and you have an excellent credit, this is most likely your best route.
3. Government-insured loan
A government-insured loan is “backed” by the government to guarantee repayment to the bank, should you default on your mortgage payment.
The 3 types of government-insured loan
FHA loan –
Not every lender can offer FHA loans. A lender has to be approved by the FHA to offer FHA-backed mortgages. FHA loans tend to be more popular with first-time homebuyers, and as a result, is often referred to as the “first-time homebuyer” loan.
VA loan –
This option is available to veterans, Reservists, active duty military, or even surviving spouses of veterans.
USDA loan –
USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify.
4. Fixed-rate mortgage
A home loan that has a fixed interest rate for the entire term of the loan. This means that the mortgage carries a constant interest rate from beginning to end. Fixed-rate mortgages are popular products for consumers who want to know how much they’ll pay every month.
Best for borrowers who want the predictability of the same payments throughout the entire loan.
5. Adjustable-rate mortgage (ARM)
A home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a period of time.
If you don’t plan to stay in the home for a long time, and are comfortable with the risk of larger payments down the road, this is type of loan is good for you.