Across the country, rent prices are skyrocketing. Up nearly 10% in some areas, more and more people are deciding that it’s time to start paying their own mortgage, not their landlord’s mortgage.
If you are considering buying a home and taking out a mortgage, there is a lot to consider. The easiest way to ensure that you are getting a home and a mortgage that is best for you is to do your due diligence and research your options.
We’re here to help. Read on to learn more about the different types of mortgages you can consider.
Conventional mortgages are the most common mortgage type and the loans are backed by a private mortgage lender, bank, or credit union. Your payment stays the same throughout the life of the loan, which is usually 15 or 30 years.
You can get a conventional mortgage with as little as 3% down, but you’ll have to pay private mortgage insurance (PMI) if your down payment is less than 20%. You’ll also need a higher credit score and fall within the strict debt-to-income ratios to qualify for a conventional mortgage.
VA loans are backed by the federal government and insured by the Department of Veterans Affairs. They are only available to active or former members of the US military or National Guard.
VA loans allow you to buy a home with no down payment and the interest rates are low compared to other mortgage programs. No PMI is required and closing costs are typically capped and may be paid by the seller to help reduce the amount of money that buyers must bring to the closing.
FHA loans are also backed by the federal government. The Federal Housing Authority (FHA) funds these loans primarily for individuals who don’t have a large down payment saved or who do not have great credit. Interest rates are low and you don’t need a huge down payment, but you will have to pay PMI if you put less than 20% down.
Adjustable-rate mortgages (ARMs) are a good option if you only plan to be in your home for a few years. Instead of a fixed payment throughout the life of your loan, your interest rate varies. Most ARMs have a fixed rate for the first few years of the loan and then the interest rate fluctuates based on market conditions.
One of the downsides of an ARM is that your payments could become unaffordable if interest rates rise dramatically. Look for an ARM that caps how much your interest rate or monthly payment can increase so you don’t find yourself in this situation.
There are many different choices for mortgages depending on your financial situation. Speak with a lender to learn more about the best mortgage options for you.
Which of These Different Types of Mortgages Is Right for You?
There are many different types of mortgages to consider depending on your credit score, down payment, how much time you will be in the home, and your status as a veteran. Weigh the pros and cons of each mortgage and speak with your lender to determine what is best for you.
Want to know more about mortgages and buying a home? We can help. Check out some of our other articles about home buying.