You probably know that almost everyone needs a mortgage to buy a home. But you might not know just how many types of mortgages there are. Our real estate agents are here to demystify your options and help you decide which kind of mortgage is right for you.
Let’s break down home loans into five major categories to make them easier to understand. If you’re in the market for Roslyn homes for sale, read on to learn about your mortgage options.
- Conventional Loan
The most common type of mortgage is a conventional loan, available from most lenders, including banks, credit unions, and non-bank mortgage lenders. They can be used to finance a primary residence, a second or vacation home, or an investment or rental property.Generally speaking, most borrowers must have a credit score above 620 to qualify, and the minimum down payment is typically as low as 3 to 5%. There are actually two types of conventional loans:
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- Conforming loans, which conform to the standards set by the Federal Housing Finance Agency (FHFA) for markers like credit, debt, and loan size.
- Non-conforming loans, which do not meet one or more of the FHFA’s standards. The most common non-conforming loan is a jumbo loan.
- Jumbo Loan
Jumbo loans differ from conventional loans since the loan amount surpasses the conforming loan limit set by the FHFA. The specific amount depends on where you’re buying a home, but jumbo loans are commonly required for the most expensive properties and luxury homes. - Government-Backed Loan
Government-backed mortgages (sometimes referred to as government-insured mortgages) are designed to make homeownership more accessible to buyers, especially lower-income buyers and first-time buyers. Though the U.S. government isn’t a mortgage lender, it guarantees mortgages issued through three separate government-backed entities. Hence, there are three types of government-backed loans:
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- FHA Loans are backed by the Federal Housing Administration (FHA). They open the door to borrowers with lower credit scores, albeit with a higher down payment. It can only be used for a primary residence.
- USDA Loans are backed by the U.S. Department of Agriculture (USDA). They are typically for lower-income borrowers in rural areas and are commonly (but not exclusively) used to purchase farmland.
- VA Loans are backed by the Department of Veterans Affairs (VA). They are available to active duty and veterans of the U.S. Armed Forces and their immediate family. In some cases, VA loans have flexible credit requirements and little to no down payment.
- Fixed-Rate Mortgage
Fixed-rate mortgages are so named because they maintain the same interest rate throughout the entire lifetime of the loan. They usually come in terms of 15 or 30 years.The chief advantage of a fixed-rate mortgage is that the monthly mortgage payment will always be the same, making it easier to budget. They are a good option if you plan to stay in your home for a long time.
- Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) comes with an interest rate that can change over time. This type of loan typically has a lower introductory rate for a set period, after which the rate can either go up or down. The lower introductory rate makes them popular among individuals who do not plan to live in their home for more than a few years.
Contact us today to learn more about all your home loan options. Our real estate agents at Laffey Real Estate are dedicated to helping you find the perfect mortgage for your unique situation.