7. The Main Types of Mortgages

by Local Title

When you’re ready to buy a home, understanding the different types of mortgages is crucial. The right mortgage can save you money and align with your financial goals. Here are the main types of mortgages you should know about as you embark on your homebuying journey.

Fixed-Rate Mortgages

Fixed-rate mortgages are the most common type of home loan. With this mortgage, the interest rate remains the same for the entire term of the loan, typically 15, 20, or 30 years. This stability means your monthly payments stay consistent, making it easier to budget. Fixed-rate mortgages are ideal for buyers who plan to stay in their homes for a long time and prefer predictability in their payments.

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) have interest rates that change periodically based on market conditions. Typically, an ARM will start with a lower fixed interest rate for a set period, such as five or seven years. After this initial period, the rate adjusts annually. ARMs can be appealing if you expect your income to increase or plan to move before the initial fixed-rate period ends. However, be aware that your monthly payments could rise significantly when the rate adjusts.

FHA Loans

Federal Housing Administration (FHA) loans are popular among first-time homebuyers. These loans require a lower down payment, often as little as 3.5%, and are accessible to borrowers with lower credit scores. FHA loans are insured by the government, which reduces the risk for lenders. This makes them a good option for buyers who may not qualify for conventional loans.

VA Loans

VA loans are designed for veterans, active-duty service members, and certain members of the National Guard and Reserves. These loans are backed by the Department of Veterans Affairs and offer significant benefits, including no down payment and no private mortgage insurance (PMI). VA loans also typically have competitive interest rates, making homeownership more affordable for those who have served our country.

USDA Loans

The U.S. Department of Agriculture offers USDA loans to promote homeownership in rural areas. These loans require no down payment and are available to borrowers with low to moderate incomes. USDA loans are a great option if you’re looking to buy a home in a qualifying rural or suburban area and need flexible financing options.

Jumbo Loans

Jumbo loans are for buyers looking to purchase luxury properties or homes in high-cost areas. These loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Because they represent a higher risk for lenders, jumbo loans typically require a larger down payment and a higher credit score. They also often come with higher interest rates.

Choosing the right mortgage depends on your financial situation, how long you plan to stay in the home, and your comfort level with potential payment changes. Fixed-rate mortgages offer stability, while ARMs can provide initial savings. FHA, VA, and USDA loans offer accessibility and special benefits for qualifying buyers, and jumbo loans cater to those purchasing high-value homes. Understanding the main types of mortgages can help you make an informed decision that aligns with your financial goals and homeownership plans.