Before you purchase a home, it’s important to educate yourself about the various types of mortgages you can get so you can make the right decision when the time comes to choose yours.
Fixed-Rate. The most popular on the market, a fixed-rate mortgage, is ideal for homeowners who expect to stay in their homes for many years. This loan makes it easier to plan your budget year over year with a fixed interest rate and monthly payment.
Adjustable-Rate. This type of mortgage offers a lower interest rate and monthly payment at first, then slowly increases as time goes on. This type of loan can be beneficial for younger homebuyers who expect to grow in their careers and make more money in the future.
Government-Insured. There are several types of government-backed mortgages, including Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans, United States Department of Agriculture (USDA) loans, and more. These programs can help you finance a home if you meet each one’s qualifications.
Conforming. A conforming loan falls within the maximum limits set by government agencies that back most U.S. mortgages, Fannie Mae and Freddie Mac. With this type of mortgage, borrowing costs and required down payment is generally less, but interest rates can be slightly higher.
Jumbo. This type of conventional loan applies if the home’s price exceeds federal loan limits. Your credit score generally must exceed 700, and you are required to make a larger down payment. However, it allows you to borrow more money to purchase a more expensive home.