Different Types of Mortgages
When you don’t know much about buying a home, it can seem like there is only one way to do things and only one way to make payments. On the contrary, there are numerous different home loan options, and the more you know the easier it will be to understand the process when working with your lender.
Here are six different home loan options and what you should know about them:
- Fixed-Rate Mortgage – A traditional fixed-rate mortgage sounds pretty straightforward, you have the same interest rate through the entire life of your loan. That means you’ll make the same payment every month for the set time-period until it is paid off. This also means that for the first few years that you are making payments on your mortgage, only a small amount is actually going towards the principal, most of it is going towards the interest. The time frame of these loans can vary. The benefit to this type of loan is that there aren’t any surprises to your payments, you always know what you’re paying each month.
- Adjustable-Rate Mortgage – Just like the fixed-rate this is pretty much exactly what it sounds like. Instead of the same rate and payment throughout the life of your mortgage, it changes. It can vary and your interest rate will change every now and then. This typically means your rate and monthly payment amount will increase over time. This can be beneficial if the homeowner plans to refinance in the near future, although it can be riskier as your payments can go up quite a bit.
- FHA Loans – An FHA loan is a government insured loan. Essentially the government is promising the lender that they will be paid back for the loan. This is perfect if you aren’t able to make a large down payment. The benefit of this is that you can have a small down payment, however, you will have to pay for mortgage insurance. This makes your monthly payments a bit higher.
- VA Loans – This is very similar to an FHA loan as the government is guaranteeing the loan but is meant for military and their families. Those who qualify for this loan may not have to put down any down payment.
- USDA Loans – This is another government loan for those who live in rural areas and have a steady modest income. You could also have no down payment, however, this is for borrowers who are unable to qualify for other types of financing.
- Jumbo Loans – Jumbo loans are ones that are deemed riskier by the lender because of their size. Typically a borrower must have great credit and be willing to put down a larger down payment to qualify for this type of loan.
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