Every mortgage type offers different options, and which one a buyer chooses will impact their future finances.
The two main groups are fixed-rate and adjustable-rate mortgages (ARMs), which fall under the banner of conventional loans or those that the government doesn’t back.
Other loans are government-backed, while jumbo loans are typically utilized for luxury, high-cost properties.
They will also often require a down payment of at least 20% and a higher-than-usual credit score.
By the way, not all lenders offer jumbo loans.
Government-backed loans include those insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA).
All of these loans offer low down payments and credit scores but may require homebuyers to pay extra fees.
Fixed-rate mortgage agreements usually last between three to five years.
The interest rate is set in stone during this period.
However, once this deal expires, you’ll have to pay the prevailing mortgage rate of the day. At this point, you can either negotiate another fixed rate term or opt for the adjustable rate arrangement.
Your decision will usually be dictated by whether interest rates are going up or down.
If rates are rising, getting another fixed-rate deal is usually smart. But if they’re dropping, you would want an adjustable rate and enjoy the falling mortgage costs.
Fixed-rate deals make it easier to budget, of course.