While buying a home is exciting, the financial expenses can feel overwhelming. But, you can find the right mortgage loan based on your requirements. Once you’ve figured out your budget and down payment amount, you’ll have a better idea of what loan you want.
Listed below are some of the common types of home loans:
Conventional Mortgages
This home loan is not insured by the federal government. Conforming and non-conforming loans are the two types of conventional loans.
In a conforming loan, the loan amount is within the maximum limit that the Federal Housing Financial Agency (FHFA) sets. On the other hand, the loan amount in a non-conforming loan doesn’t meet these guidelines. The most common type of non-conforming loan is jumbo loans, which are large mortgages above the FHFA limits.
Jumbo Mortgages
Loans of the conventional type that have non-conforming limits are called jumbo mortgages. These loans are used when the price of the home exceeds the loan limits set by the federal government. Generally, jumbo loans require more in-depth documentation to qualify and are most common in higher-cost areas.
Government-Insured Mortgages
While the US government is not a mortgage lender, it plays a role in helping Americans buy their own home. The Federal Housing Administration (FHA) loans, the US Department of Agriculture (USDA) loans, and the US Department of Veterans Affairs (VA) loans are the 3 types of loans backed by 3 government agencies.
Fixed-Rate Mortgages
In a fixed-rate mortgage, the interest rate remains the same for the entire loan period. This means that your monthly payments towards your mortgage will always remain the same. Typically, fixed-rate loans come in terms of 15, 20, or 30 years.
Adjustable-Rate Mortgages (ARMs)
In ARMs, the interest rate fluctuates based on the market conditions, as opposed to staying the same like in the case of fixed-rate loans. Some ARMs have a fixed interest rate for a couple of years, and then the loan changes to a variable rate of interest for the rest of the loan term. If you’re opting for an ARM, find one that caps the increase of your mortgage rate or interest rate, so that you don’t end up draining all your financial resources.