Exploring The Different Types Of Home Mortgage Loans
Buying a home is a very exciting time in your life. Figuring out the financing for the purchase might be a little less exciting; but its necessary, unless you plan on paying cash. Once you learn about the different types of home purchase loans that are available,
you can choose the option thats the best fit for your personal financial needs. From adjustable-rate and fixed-rate mortgages to FHA and VA loans, a little knowledge can help you compare the options out there to find the one thats right for you.
Adjustable-rate mortgages (ARMs) have an interest rate that fluctuates up or down over the life of the loan. ARMs generally have lower introductory interest rates than fixed-rate mortgages, but this changes over time as the interest rate changes. The adjustment period varies from loan to loan -- they range from monthly to annually.
SEE ALSO: Must Know Dangers of Adjustable Rate Mortgages
Fixed-rate mortgages have a fixed interest rate for the life of the loan. The most popular terms for these types of loans are for 15 and 30 years. For individuals who like to know what their monthly mortgage payment is, fixed-rate loans offer predictability.
If youve served in the military, you may be eligible for loans available from the U.S. Department of Veterans Affairs (VA), which offers no- and low-cost loan options. Veterans who are eligible for such loans can purchase or refinance a primary residence. The benefits of VA loans include interest rates and upfront costs that are lower than standard mortgage options, as well as more flexible requirements.
These mortgages are guaranteed and backed by the federal government through the Federal Housing Administration (FHA). FHA programs help spur homeownership by offering low interest rates and low upfront costs as compared to other types of mortgages. They can require, for example, as little as a 3 percent down payment by the borrower.
FHA loans have more stringent qualifying criteria that borrowers have to meet. In addition, they also have a cap on the maximum amount of a mortgage that you can apply for.
When the mortgage amount exceeds the FHA limitations, jumbo loans come into play. These instruments cover financing for larger loan amounts, but they also come with higher interest rates.
Financing the purchase of a home or refinancing an existing mortgage tends to open a lot of doors when it comes to financing options. Narrowing down your choices depends on your personal situation. Once you know what types of loans are out there, you can shop and compare your options to narrow it down to the mortgage that best fits your needs.
SEE ALSO: Mortgage Case Study: Non-conforming Jumbo Or Conforming Plus HELOC