What Are the Different Mortgage Loan Options?
When it comes to owning your own home, there are several financial aspects that you’ll want to consider: your budget, your potential down payment, and what type of mortgage loan you’ll need. There are several options available when it comes to mortgages – but how do you pick the right one? Let’s review the different types of mortgage loans and help you find out which one is the best option for you.
Also called a conventional mortgage, fixed-rate mortgages are one of the most common types of mortgages. With a fixed-rate mortgage, your interest rate will stay the same for the entire term of the loan. This means that your monthly payment of principal and interest will never change through the course of your loan.
A fixed-rate mortgage may be a good option for you if you’d prefer to have a mortgage payment that doesn’t change and if you plan on staying in your home for a long time.
Adjustable-rate Mortgage (ARM)
Adjustable-rate mortgages (ARMs) have an interest rate that may change over the course of the loan and offer a lower interest rate at the beginning of the of loan. As time goes on, your interest rate and your payment may increase, depending on the benchmark rate index.
If you want lower payments during the first few years of your loan or plan to pay off your mortgage within the next 5 to 10 years, an ARM may be a good choice for you. ARMs are also a good option if you plan to move within in the shorter term.
An FHA loan is a government backed mortgage loan and it’s a great option if you have limited savings or a lower down payment. This type of loan is insured by the Federal Housing Administration (FHA) and it allows down payments as low as 3.5%.
A VA loan is an option for qualified U.S. active-duty military personnel, U.S. veterans or surviving spouses. This type of loan is insured by the Department of Veterans Affairs. A VA loan does not require a down payment or mortgage insurance.
Maybe you’re thinking of building a home instead of buying. A construction loan offers the convenience of a one-time loan application that covers the construction loan and the permanent mortgage on your newly built home. A construction loan offers a Construction Draw Period, which allows funds to be used for the construction of the home. During this time, you’ll only pay interest on the loan. Once the home is finished, it will transition into a permanent mortgage loan and you’ll begin making monthly payments of principal and interest.
In addition to all the mortgage loan options above, be sure to ask your lender if they participate in any housing programs offered by the city, county or state housing agency. You could be eligible for flexible down payment options, down payment or closing cost assistance or grants.