Conventional or fixed-rate mortgage.
- Generally considered when homebuyers intend on staying in their home for several years
- Predictable monthly payment for the life of the loan
- Duration of the loan impacts the size of the monthly payment, amount of interest paid, amount of time to build equity in a home, and length of time to pay off loan
- Longer term loans have lower monthly payments and pay more interest over the life of the loan, taking longer to build equity and pay off the mortgage
- Lower term loans have higher monthly payments and pay less interest over the life of the loan, take less time to build equity and pay off the mortgage
Adjustable rate mortgage (ARM).
- Lower rates and monthly payments than fixed rate loans for the first 5-10 years of the loan
- Rates and payments can be locked in for up to 10 years before the interest rate can adjust to market rates within the boundaries set out by the loan
- Monthly payments may rise at the end of the ARM depending on interest rate environment at the time the initial rate period ends
- Can be a viable option for homebuyers who know they’ll be moving in a few years
- Designed for borrowers able to make a larger down-payment and who have a strong credit history
VA Loans backed by the Department of Veteran’s Affairs.
- Available for eligible service members, veterans and their families
- Lower minimum credit requirement, making it easier for new home purchases and even refinances
- $0 down payment reduces stress of securing the traditional 20%, making it easier to get into a new home
- No private mortgage insurance necessary.
- VA Streamline Refinance (IRRRL) typically offers a lower rate for refinance, less paperwork than the original loan or traditional refinance, and may not require the additional cost of appraisal
- Lower interest rates than standard, fixed-rate conventional mortgage interest rates
Federal Housing Authority (FHA)loans.
- Government-backed home loan with more flexible lending requirements than conventional or fixed-rate mortgages
- Available for homeowners who can afford a lower down payment; down payment as low as 3.5%
- Lower credit requirements are available compared to conventional home loan
- Interest rate may be higher due to lower down payment, and monthly mortgage insurance may be necessary
- Available in fixed-rate or adjustable rate mortgages
Private Mortgage Insurance (PMI).
- Insurance used to protect lenders in case the loan cannot be repaid; typically applies to conventional loans
- May be necessary when a down payment is below 20%
- Depending on the credit history of the homebuyer, PMI can cost between 0.25%-2% of the total loan balance until the homebuyer has reached 20% equity
- FHA loans have their own mortgage insurance with different requirements for homeowners who can afford a lower down payment
- VA loans don’t have any PMI requirements even though they allow a 0% down payment, but have specific qualifications
- A home loan that is $417,000 or more and may come with higher interest-rate mortgages depending on the qualification criteria of the home buyer
- In some states where the cost of living is higher, loans are considered to be jumbo loans when the loan value is $625,000 or more