Types of Mortgages for Buying a House

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When buying a house it is very important to educate yourself on what loan options are out there. Most homes are purchased using a mortgage because of how hard it is to save enough money to buy a house with cash. There are several different types of mortgages available and each type has its own unique features and requirements. If you need more information on one of these please let me know and I can connect you with a lender who can answer all of your questions regarding financing your next house.

Common Types of Mortgages:

Fixed-rate mortgages

Fixed rate mortgages have a fixed interest rate that is locked in throughout the life of the loan, typically 15 or 30 years. You will pay off a 15 year mortgage a lot faster and pay less interest over the life of the loan than a 30 year but your payment amount will be higher. These mortgages provide predictable monthly payments, making it easier to budget for your mortgage. The interest rate is typically higher than adjustable-rate mortgages. Fixed rate mortgages are the most common mortgages you will find and may have various different products available with different lenders.

Adjustable-rate Mortgages (ARMs)

Adjustable Rate Mortgages have an interest rate that is adjusted periodically based on a financial index, such as the prime rate. ARMs usually have lower initial interest rates than fixed-rate mortgages, but the interest rate can increase over time, which can make it harder to budget for your mortgage payments. Normally you will be able to have the rate locked in for a period of time (7 years, 10 years, etc) then the rate will adjust to the current market rates.

Jumbo Mortgages

Jumbo mortgages are designed for high-value properties that exceed the limits set by Fannie Mae and Freddie Mac. Jumbo mortgages typically have higher interest rates and stricter requirements, such as higher credit scores and larger down payments.

FHA Loans

FHA Loans are insured by the Federal Housing Administration and designed to help borrowers who may not qualify for conventional loans. FHA loans typically have lower down payment requirements and more lenient credit score requirements. FHA loans tend to have a more stringent appraisal process and may require adjustments or repairs to a home before closing.

USDA Loans were developed to encourage rural development.

VA Loans

VA Loans are guaranteed by the Department of Veterans Affairs and available to eligible veterans, active-duty service members, and their spouses. VA loans typically have lower interest rates and no down payment requirement. VA loans are assumable loans that can transfer over to other buyers.

USDA Loans

USDA loans are guaranteed by the U.S. Department of Agriculture and available to borrowers in rural areas. USDA loans typically have low or no down payment requirements and low interest rates. USDA loans are not available in Urban areas. Their purpose is to encourage people to purchase and develop rural properties.

Interest-only mortgages: These mortgages allow you to make interest-only payments for a set period of time, typically 5-10 years, before requiring principal payments. Interest-only mortgages can be helpful if you have irregular income or expect to earn more in the future, but they can be risky if you don’t have a plan to pay off the principal.

It’s important to consider your financial situation and goals when selecting a mortgage type. A mortgage professional can help you understand your options and choose the best type of mortgage for your needs.

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