What Types of Mortgages are Available and Which is Best for You?
LOUISIANA REALTORS • July 24, 2017
Mortgages can be a lot like ordering off of a menu at a restaurant; you have a lot of options. Just as you can order a steak to your liking, rare, medium, etc., and choose from a variety of salads and sides, there are different types of mortgages
available to meet your needs as well.
There are pros and cons to each type of mortgage, but understanding what each of them offers can help save you time and money as you shop for a home. Let’s take a closer look at each type of mortgage.
Fixed Rate Mortgage
A fixed rate mortgage maintains the same interest rate for the entire repayment term. This loan type will have the same monthly payment for the life of the loan.
Adjustable Rate Mortgage (ARM)
Adjustable rate mortgages have an interest rate that will change from time to time based on the terms of the loan. There are also hybrid ARMs that will feature a fixed rate for a certain period of time before switching to an adjustable rate.
FHA Loans
An FHA loan is a government-insured home loan. The Federal Housing Administration insurance program is managed by the Department of Housing and Urban Development (HUD). FHA loans are available to all types of home buyers. This program offers you the ability to make a down payment as low as 3.5%, however you do have to pay for mortgage insurance.
VA Loans
VA loans are available to military service members and their families through the U.S. Department of Veterans Affairs (VA). Similar to FHA loans, these are also government-insured loans. Borrowers under this program can receive 100% financing.
USDA / RHS Loans
The United States Department of Agriculture (USDA) has a loan program for borrowers that meet specific income requirements. Managed by the Rural Housing Service (RHS), this type of loan is available for “rural residents who have a steady, low, or modest income, and yet are unable to obtain adequate housing through conventional financing.” To qualify, a borrower’s income can be no higher than 115% of the adjusted area median income (AMI), which varies by county or parish.
Conforming Loans
A conforming loan is a loan that meets the underwriting guidelines set forth by Fannie Mae and Freddie Mac, as far as the size of the loan is concerned. Fannie Mae and Freddie Mac are government controlled corporations that buy and sell mortgage-backed securities. Conforming loans are loans that meet their pre-determined size limits and criteria.
Jumbo Loans
A jumbo loan is any loan that exceeds the aforementioned size limits and criteria. These loans tend to offer a higher risk for the lender based on their size. Jumbo loan borrowers need excellent credit and need to provide a larger down payment to mitigate these risks. This type of loan also typically feature a higher interest rate.
When shopping for a new home it is important to hire a REALTOR® for their experience and expertise. REALTORS® also have a vast professional network that can include banks, lenders, and mortgage brokers to help you find the best mortgage.
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