No single type of home loan is right for everyone. Discover what type of mortgage is the perfect fit for you.
If you are like most home buyers, there is one big thing standing between you and your dream home: figuring out how to pay for it. Unless you happen to have access to a huge trust fund or have recently won the lottery, you will most likely need to borrow money to help afford the purchase of a home. This loan will be in the form of a mortgage. There are several different types, so it’s important to consider what type of mortgage is right for you.
Your real estate agent or mortgage lender can help you determine how much of a loan you may qualify for, and will walk you through the process of applying for a loan. But before you dive into the nitty gritty of actually getting a mortgage, it will be helpful for you to have a basic understand of the different types of mortgages that may be available to you.
Fixed-rate & adjustable rate mortgages.
One of the most important elements of a mortgage loan to you as a borrower is the interest rate. This determines what your monthly payment will be and how much you will end up paying the lender beyond the amount you need to pay for the home. If you are someone who likes predictability and wants to know exactly what you’ll have to pay each month, you will likely prefer a fixed-rate mortgage, where the interest rate stays the same for the life of the loan. On the other hand, if you are okay with some slight wiggle room in your budget or don’t intend to stay in the home for more than a few years, an adjustable rate mortgage, or ARM, might be an option you want to consider. ARMs have a fixed rate for a set period of time (three years for a 3/1 ARM, 5 years for a 5/1 ARM, and so on), but then can change every year thereafter, depending on whether the interest rate index changes
Conforming or jumbo loans.
A conforming loan gets its name from the fact that conforms to guidelines dictated by Fannie Mae and Freddie Mac, mortgage-buying entities that are privately owned by supported by the government. One of the main restrictions is the amount of the loan. This varies depending on the specific location and number of units in the property. As an example, Fannie Mae’s loan limits for conventional mortgages currently lists a maximum mortgage of $453,100 for a one-unit property in the contiguous states, District of Columbia and Puerto Rico. A jumbo loan is a mortgage that exceeds these guidelines and typically has stricter qualifying standards.
Government-guaranteed or conventional mortgages.
You might not have inherited a windfall from a rich relative, but having Uncle Sam on your side can be the next best thing when you want to borrow money to buy a home. This is especially true if you want to keep your monthly payment as low as possible, don’t have a huge down payment, or have had some credit challenges.
Mortgages backed by the government.
FHA Loans: A loan backed by the Federal Housing Administration (FHA) offer lower interest rates and more flexible qualifying requirements. Plus, the down payment could be as low as 3.5 percent, depending on your credit score.
VA Loans: If you are a veteran or member of the military (or the qualifying spouse) you may qualify for a VA loan, which can allow you to get 0% down loan with more attractive terms and an easier approval process.
Rural Housing Loans: Backed by the U.S. Department of Agriculture, Rural Housing loans help buyers with low or moderate incomes buy or build a home in rural areas.
If none of the government loan programs are a good fit for you, there’s always a conventional mortgage, which is the traditional type of mortgage obtained via a lender without any type of government guarantee or backing involved.
Let Trulia help you find the right mortgage for you, and connect with a lender who can get you approved.