Deciding to buy a home is one choice that's followed by many others – including picking the mortgage that's right for you. There are several types of loans, each designed for a particular purpose.
Most lenders offer conventional loans and popular loans backed by the federal government and Department of Veterans Affairs (VA). Below, find the definitions of the various kinds of home loans, and educate yourself before you make your mortgage commitment.
- Conventional loans are not backed by the government, which may mean stricter qualification criteria related to credit rating and financial history. However, buyers may build equity sooner with a conventional loan since a bigger down payment is required.
- Fixed rate mortgages are tradition loans that maintain the original interest rate throughout the life of the loan. (Any change in monthly loan payments will be due to increases in other charges like insurance or taxes that will naturally occur over time.) Fluctuations in market rates, over the term of your loan, won't affect the amount of interest you pay because that rate is already "fixed."
- Adjustable rate mortgages (ARMS) have a fixed interest rate for up to seven years. The lower starting rate reduces the payment for that period, after which the interest rate may adjust annually. ARMs appeal to buyers who want a lower payment at first, but plan to pay off their mortgage within 10 years or plan to move soon.
- VA loans allow for zero-down payment to active and veteran military men and women and their surviving spouses who qualify based on income and credit rating.
- Jumbo loans are specifically designed for more expensive property that would require a mortgage exceeding the conforming loan limit of $417,000 (higher in Alaska and Hawaii).