Different Types of Mortgages: Which is Best?
The term “mortgage” may sound pretty cut and dried to novice ears. However, a mortgage is anything but. You may have just thought that a mortgage would be another monthly bill for you and your family, but there’s definitely much more to it. There isn’t just one type of mortgage out there available to potential home-buyers and the one that’s right for your neighbor might not necessarily be right for you. How will you know which type of mortgage is right for you? We’re breaking them down below!
This type of mortgage is the most traditional of the bunch. With a fixed-rate mortgage, you pay the same amount every month for a set amount of years (10, 15, 20, 30 – 30 is the most popular) with a set amount of interest added. When market prices rise (or fall), your mortgage expense remains the same. This is the safe bet when it comes to a mortgage. Unless you plan on moving in a short amount of time, then in that case one of the other options might be safer for you.
With an adjustable-rate mortgage, your mortgage expense will do just that – adjust itself according to which type you choose. Under this type of mortgage, there are a few subcategories which determine when and how much your mortgage will fluctuate. The constant between all of these though is that you will always begin with the same (low) rate. So if you plan to move in a short amount of time, this may be your best bet when it comes to a mortgage since it has immediate appeal.
After you choose which of the above types of mortgages are right for you, you’ll then need to explore the loan options outlined below.
Government & Conventional Loans:
Not everyone qualifies for a governmentloan, but you may want to explore that option if you do. There are several different types of these loans: Federal Housing Administration (FHA) loans, Veterans Administration (VA) loans, and United States Department of Agriculture (USDA) loans. All of these require different sets of qualifications (credit, income, etc) and simply act as a loan towards your mortgage, but still needs to be repaid.
Unlike a government loan, a conventional loan isn’t issued or back by any part of the government. So where does the loan come from? Typically, these mortgages are issued by a bank.
Jumbo & Conforming Loans:
A jumbo loan is pretty self-explanatory as it’s a loan for a higher-priced home. This type of loan often requires a higher down payment and has a higher interest rate. Like the rest of the loans we’ve mentioned, you must qualify for it and have excellent credit.
A conforming loan, while much less of a loan than a jumbo loan, is one that meets the underwriting guidelines of Fannie Mae or Freddie Mac, particularly where size is concerned. These guidelines include your credit rating and your household income. There is also an assets requirements and they’re very dependent on the loan amount that you’re seeking.
We hope this helps you choose which type of mortgage is right for you. When it comes to buying or renting a home, we have more info for you here.