When you’re buying a home, the mortgage you choose is a very important decision. There are five main types of mortgages, and each one has its own benefits and drawbacks. This guide will help you decide which type of mortgage is right for you.
Which of These Five Main Mortgage Types is Right for You?
The five most common mortgage types include:
- Fixed-rate mortgages
- Adjustable-rate mortgages
- VA Loans
- FHA Loans
- USDA Loans
Here’s a closer look at each.
A fixed-rate mortgage is just what it sounds like – the interest rate on your loan is fixed, and it will never change. This type of mortgage is a good choice if you plan to stay in your home for a long time, because you’ll always know exactly how much your monthly payments will be.
The downside of a fixed-rate mortgage is that they usually have higher interest rates than other types of loans. This means you’ll pay more interest over the life of the loan.
An adjustable-rate mortgage, or ARM, has an interest rate that can change over time. The initial interest rate on an ARM is usually lower than a fixed-rate mortgage, but it can go up or down depending on economic conditions.
The benefit of an ARM is that you might be able to get a lower interest rate than you would with a fixed-rate mortgage. The downside is that your interest rate could go up in the future, which would increase your monthly payments.
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A VA loan is a type of mortgage that’s available to veterans and active-duty servicemembers, as well as some dependents and survivors. It’s also available to some other government employees. VA loans have a number of benefits, including no down payment and no private mortgage insurance.
The downside of a VA loan is that you might have to pay a funding fee, which is a one-time charge that ranges from 1.25% to 3.3% of the loan amount. However, you can typically roll your funding fee into your total loan amount.
An FHA loan is a mortgage that’s insured by the Federal Housing Administration. FHA loans have a few benefits, including a lower down payment requirement and lenient credit standards. The downside is that you’ll have to pay private mortgage insurance if you put less than 20% down.
Related: FHA loans, explained
A USDA loan is a mortgage that’s available to eligible rural and suburban homebuyers. USDA loans have a number of benefits, including no down payment and lenient credit standards. The downside is that you’ll have to pay a guarantee fee, which is a one-time charge equal to 1% of the loan amount.
How to Decide Which Type of Loan is Right for You
The best way to decide which type of loan is right for you is to talk to a mortgage lender. They’ll be able to help you compare your options and choose the best loan for your situation. You may have other options that aren’t listed here, as well.
How Do You Find the Right Lender to Get a Mortgage?
The best way to find a lender is to ask around for recommendations. You can also look online or check with your local chamber of commerce. Even better, you can ask your real estate agent for a referral; they’re likely to know a local professional who can help you get the best possible terms and interest rates. Once you’ve found a few potential lenders, you should compare their mortgage rates and fees. Make sure to ask about any hidden costs, as well.
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