A home purchase is one of the biggest investments a person can make. But what types of home loans are available, and how do they differ? These five types of home loans can help you with financing and even down payments, but they all have pros and cons to consider. Read on to learn more before making your decision. And keep in mind that consulting with a professional mortgage brokerage can help you decide which loan type works best for your specific needs.
Conventional home loans are still the most common type of loan, accounting for two-thirds (66%) of all mortgages. Conventional loans offer borrowers certain protections and advantages, including lower interest rates than alternatives like adjustable rate mortgages.
Conventional loans aren’t insured by the government agency Fannie Mae, Freddie Mac, or the Federal Housing Administration. Conventional mortgages include adjustable rate mortgages and fixed-rate mortgages with terms ranging between 10 to 40 years.
Adjustable-rate mortgages (ARMs) have interest rates tied to a specific index. With an ARM, your monthly payments will change if the interest rate rises or falls. ARM loans have become increasingly popular because they offer more flexibility in interest rates which can save someone money if their financial situation changes, or inflation causes prices to go up over time.
Fixed-rate mortgages are a great way to lock in your rate for years. A mortgage with an interest rate that doesn’t change is called “fixed.” On a fixed-rate mortgage (FRM), the interest and principal repayment amounts stay stable for a specific period of time: 10, 15, 20, 30 years, etc. Once the term ends, the loan’s interest rate and payment amount may change according to an index.
If you are in the market for a mortgage but want some assurance that your interest rate won’t change over time, this type of loan may work best.
As the name implies, government-insured loans are backed by government resources. Two of the most common types of government-insured loans are the FHA loan and the VA loan.
The most popular type of government-insured housing loans is the FHA loan. FHA loans are insured by the Federal Housing Administration. This means that you can get a better deal on your loan because part of the risk is absorbed by another party (the government).
The FHA loan is a low-interest mortgage that’s available for first time home buyers. It has fewer requirements than most other types of loans, meaning you can get it if your credit isn’t perfect or if buying an expensive house with cash would be too difficult financially.
The requirements for an FHA loan depend on the individual loan type but can require as little as a 3.5% down payment on a home purchase loan.
Another popular type of government-insured loan is the VA loan, backed by the Department of Veterans Affairs. Active duty military personnel, veteran service members and their spouses are eligible for the VA loan program. These loans offer significant benefits including lower interest rates that require no down payment or monthly mortgage insurance premiums; these factors make it an attractive option when compared with other financing options available in today’s marketplace.
A jumbo loan is a type of home lending that allows you to borrow more than the average amount. The benefit? A larger house with all amenities included in price, so there’s no need for special financing conditions or additional payments when moving into your dream property.
The conforming loan limit is $548,250 in most counties in the U.S. this year; $822,375 in higher-cost areas. Any mortgage over these amounts is called a jumbo loan. Jumbo loans are for mortgage amounts that exceed these prices, which is the maximum amount for Fannie Mae and Freddie Mac mortgages. Jumbo loans often require a higher credit score than what’s required by other types of loans and benefits people who can afford these types of payments.
Homeownership is one of the most important decisions you’ll make in life, and First Coast Mortgage Funding helps ease that burden. With over 44 years of experience serving the Ponte Vedra, Jacksonville and St. Augustine areas, we are ready to help you hit the ground running. Contact us today to explore your best options when it comes to home ownership.