Types of Mortgages
A fixed-rate mortgage offers a monthly payment that stays the same over the life of the loan. The amount you pay is “fixed” no matter what happens with interest rates or anything else in the market. It is very popular because many people like the security of knowing exactly what their payments will be. If you plan on being in your home for the long term, a fixed-rate mortgage would most likely be your best option.
ARM or Adjustable Rate Mortgage
This mortgage has two parts. It starts off with a fixed interest rate for a certain number of years (typically, 3, 5, 7, or 10 years) then it becomes adjustable. What that means is that the interest rate you pay is tied to what’s going on in the market. That means it can go up and down. Who usually chooses this mortgage? It tends to work best for buyers who plan on selling or refinancing their home before it hits the adjustable period.
FHA stands for Federal Housing Administration, which is part of HUD. FHA loans have been helping people become homeowners since 1934. It’s a government insured loan and is often considered as a mortgage for first-time homebuyers because it requires a smaller down payment and is more flexible on income and credit requirements. If the down payment you can make is less than 20%, this may be the right loan for you. With an FHA loan, you must take out Mortgage Insurance.
VA stands for Veterans Affairs and these loans are insured by the Department of Veterans Affairs. To qualify, you must be a current or former member of the U.S. armed forces. You can also qualify if you are the current or surviving spouse of someone who is serving or has served. These loans often have lower interest rates and down payment requirements. The available terms are 15 years and 30 years.
Rural borrowers who meet certain income requirements can receive a home loan issued through the United States Department of Agriculture (USDA). This type of mortgage loan is offered to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing.” This program is managed by the Rural Housing Service (RHS), which is part of the Department of Agriculture.
A conventional home loan is a loan that is not insured or guaranteed by any government agency and typically has a fixed rate. Conventional loans also offer several repayment period terms. Different repayment terms (10-, 15-, 20-, 25- or 30-year repayment periods) offer different, more competitive mortgage rates. The faster your term, the lower your rate. These loans do not require an up-front mortgage insurance premium (MIP).