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Are you in the process of buying a home? There are many different types of mortgages available, depending on your financial needs. The most common include the following: traditional mortgages, FHA loans, VA loans, conforming loans, jumbo loans, balloon mortgages, and adjustable-rate mortgages.
Types of Mortgages
Here is a brief description of each option to help you decide which type is best for you.
Traditional mortgages are some of the most common loans. They require monthly payments, typically on an amortizing loan over a certain time period (usually 30 years). Fixed-rate mortgages are also the most common type of mortgage.
FHA loans are backed by the Federal Housing Administration (FHA) and typically offer more flexible qualifications than other types of government-backed loans or conventional loans that require larger down payments or better credit scores. Down payment requirements vary based on FICO score and current market conditions.
With a VA loan , the government provides qualifying veterans with zero down payment loans. Typically, members of the military are required to have homeownership training before they can qualify for these types of loans. Although this requirement may vary by lender and region.
Conforming loans are mortgages that meet standards set forth by Fannie Mae and Freddie Mac. This type of loan typically requires a down payment of at least 5 percent, however, the minimum down payment may vary depending on your particular FICO score and current market conditions. Conforming loan limits are set by county and state, so even if you have enough money for a larger down payment, there are still limits as to how much you can borrow.
Jumbo loans are mortgages that exceed the conforming loan limit, which is set by Fannie Mae and Freddie Mac. In most cases, this type of loan will be more expensive than a conforming loan due to the increased risk.
A balloon mortgage is a type of transaction in which the buyer makes monthly payments for an agreed period of time, and then must pay off the remaining amount (the “balloon”) at the end of the term. Balloon mortgages are generally considered riskier than traditional mortgages because you’re borrowing more money at once at the end of the term.
An adjustable-rate mortgage (ARM) is a type of mortgage that has an interest rate that varies over time. The initial interest rate of an adjustable-rate mortgage will be lower than the interest rates on fixed-rate mortgages, but the interest rates may change periodically. If market rates increase, then your monthly payments could also increase.
Weighing your options
You’ll want to carefully consider the pros and cons of each mortgage option before making your final decision. Although the traditional mortgage is the most popular choice, it’s not the right choice for everyone. Talking with a mortgage broker or your bank to discuss your different options is highly recommended before making any final decisions. You’ll also want to shop around and compare different rates before committing to a specific lender.