Mortgages come in all shapes and sizes. This can make it challenging to figure out which one will be the best fit for you, especially when you’re looking at them from the outside without someone to explain the differences between each type. You might have heard of terms like FHA, VA, and ARM before, but what does that mean? To help you decide your lending mortgage needs, we’ve put together this list of different types of mortgages and what they mean for your financial future.
Conventional mortgages make up about two-thirds of all home loans. They are also known as fixed-rate mortgages. Conventional mortgages require a minimum down payment, and interest rates do not change over time.
An FHA loan is a lending mortgage insured by the Federal Housing Administration (FHA). As a general rule, they are available to borrowers with lower incomes than those required for conventional loans. Borrowers must also meet specific credit requirements. As per the experts at SoFi, “Your credit score can impact your interest rate, monthly payments, and mortgage loan options.”
Private lenders offer VA loans, but they’re backed by the US Department of Veterans Affairs or VA. It doesn’t matter if you served in peacetime or wartime; all honorably discharged veterans are eligible to apply for a VA loan.
The US Department of Agriculture (USDA) issues loans to qualified rural home buyers. These are low-interest loans, which can be used for various purposes, including purchasing a home or making energy-efficient improvements to an existing one.
Under a lease-purchase agreement, buyers rent a home with an option to buy it later. The advantage of a lease-purchase deal is that there is no need to secure financing upfront.
Unlike other mortgages, reverse mortgages allow homeowners 62 years or older to access funds from their home’s equity without selling it. This option is helpful if you have limited income but a sizable amount in home equity.
Cash-Out Refinancing Loans
Cash-out refinancing loans allow homeowners to extract some equity out of their homes. Typically, cash-out refinancing loans will require you to pay closing costs in addition to your principal balance.
Condo loans are ideal for first-time home buyers because they have less stringent qualifying criteria than other types of home loans. Because condos don’t require private mortgage insurance (PMI), you may be able to purchase one with as little as 3% down.
A jumbo loan is a mortgage that has an amount larger than most government-backed programs allow. As a result, these loans usually require a large down payment to cover more than 80% of the home’s value.
This type of mortgage loan charges a set interest rate for an agreed-upon period, usually 15 or 30 years. Then, the lender loans you money in exchange for your promise to pay it back with interest. Fixed-rate mortgages are popular because they offer borrowers certainty about their monthly payments and allow them to plan better for large purchases like homes or cars.
With an adjustable-rate mortgage or ARM, you’ll pay a low introductory rate that can stay below market rates for anywhere from one to 10 years.
If you’re looking to buy a home, don’t feel overwhelmed by all of your options. By understanding the different types of mortgages, you can make an informed decision that’s right for you.