5 Types of Mortgages for Home Owners

30-Year Fixed-Rate Mortgage

If you are planning to stay in your home for at least three decades and want a mortgage that will last that long, a 30-year fixed-rate mortgage (FRM) is an excellent choice. With the FRM, you get a fixed interest rate for the length of the loan and can choose how much you pay each month.

The term “fixed” refers to the fact that your monthly payments will remain relatively stable over time; unlike adjustable-rate mortgages (ARMs), which have higher initial rates but go up or down with changes in market conditions. The FRM also offers more affordable monthly payments than 15-year loans do — but it may cost more overall because it takes longer to pay off. If you’re able to stick with your plan and make those payments on time every month until your debt is fully paid off, though, then this type of loan might be right for you.

FHA Loan

FHA loans are government-backed mortgages guaranteed by the Federal Housing Administration (FHA). The FHA insures lenders against losses from defaulted loans, allowing them to offer reduced down payments and lower interest rates. FHA-approved lenders can charge annual mortgage insurance premiums of up to 1.35% of the loan amount, which protects them in case you default on your loan.

An FHA home loan must be underwritten by an approved lender and meet specific guidelines set by HUD (the Department of Housing and Urban Development). Because these requirements are more lenient than those imposed by conventional mortgages, borrowers may qualify for a larger loan amount or obtain a lower interest rate with an FHA home loan than they would receive through other types of financing.

VA loan

A VA loan is a mortgage for veterans that are guaranteed by the Department of Veterans Affairs (VA). It can be used to purchase a home and build up equity.

You’ll need to have served in the U.S. military, either during wartime or peacetime, in order to be eligible for this kind of mortgage. The VA also offers benefits like healthcare and education that can help you get back on your feet after service — but if you’re not interested in those programs, a conventional loan might be a better fit for you.

If you’re looking into getting a VA loan or have questions about how exactly it works or what it entails — don’t panic; we’ve got answers! We’ll walk through all the details below:

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a type of home loan that carries an initial interest rate that’s lower than the fixed-rate loan but can increase over time. The annual percentage rate (APR), or the amount you’ll pay in interest on your mortgage, is tied to an index such as the one for U.S. Treasury securities or LIBOR (London Interbank Offered Rate).

ARMs get their name from their adjustable interest rate, which changes over time according to whatever index it’s tied to. When rates begin dropping, you may be able to refinance your ARM into a new one with a lower interest rate and save money on monthly payments — and if they rise above certain thresholds during the life of your loan, you could end up paying more each month than if you’d had a fixed-rate mortgage all along!

USDA Loan

You may be eligible for a USDA loan if you are purchasing a home in an area that has been designated as rural, or an area that is considered a rural fringe. The USDA has strict lending criteria and limitations on who can purchase a home using this type of mortgage.

The following qualifications apply:

  • You must be buying a primary residence.
  • Your income must be sufficient to pay your existing debt-to-income ratio, plus any new mortgage payment. This ratio takes into account all your monthly debts (any outstanding balances).
  • You must have sufficient cash reserves to cover closing costs, including the down payment.
  • You’ll need to have at least 3 years of continuous employment or self-employment history with two different employers within the last five years (unless one employer was government or tax-exempt).

Mortgage lenders offer different loan types to meet the needs of different people. Make sure yours is right for you.

The right mortgage for you is one that fits your budget, down payment, credit score, debt-to-income ratio, and personal preferences.

If you’re going to buy a home in the next few years and are considering getting a mortgage to do so — or if you already have one — it’s important to know what options are available. Not all mortgages are created equal. Some lenders may offer higher interest rates or higher fees than others; some will give out more money than others; some require higher down payments or lower credit scores than others.

Different types of mortgages have different benefits and drawbacks — as well as varying amounts of flexibility when it comes to repayment schedules and loan terms. If your lender doesn’t offer the type of mortgage that works best for you now but might work better later on in life (e.g., as incomes increase), he will help guide clients toward other products that allow them to take advantage of these changing circumstances over time without having their loans restructured or refinanced entirely each time something changes in their lives (which can cost hundreds or thousands more dollars).

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