Deciding on What Mortgage to Take On? Learn About the Different Types and Options

Getting pre-approved for a home can be both exciting and overwhelming. With so many types of mortgages out there, it can be tough to decide on the best one for you. Not to worry, though! This blog post breaks down a few of the most common types of mortgages, so you and your mortgage professional can work together to choose which one is the best option for you.

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A Conventional Mortgage can be a Fixed-Rate or Adjustable-Rate Mortgage.

Fixed-Rate Mortgage

A fixed-rate mortgage is the most common type of mortgage out there. It’s pretty simple: your interest rate stays the same throughout the life of the loan. This is a good option if you’re planning on living in your home for a long time and want predictable monthly mortgage payments. Interest rates now are higher, so most likely, you will refinance this mortgage as rates come down.

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Adjustable-Rate Mortgage

With an adjustable-rate mortgage, also known as an ARM, the initial interest rate is fixed for a period of time, generally 5, 7 or 10 years. After the initial “fixed” period of time, your mortgage payment can go up or down depending on how interest rates move. This may be a good option if you believe interest rates are going to continue decreasing or you don't plan on living in your home for a long time. Many ARMs will start at a lower interest rate than fixed-rate mortgages.

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FHA Loans

If you’re a first-time buyer, or have little savings or credit challenges, including a more recent bankruptcy, an FHA loan may be a good choice. These loans are insured by the Federal Housing Administration, which means lenders are able to offer lower rates and more flexible criteria, such as less-restrictive credit requirements than many conventional home loans. FHA rules are more flexible regarding monetary gifts from family, employers or charitable organizations you can apply to your down payment.These loans typically require as little as 3.5% for a down payment.

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VA Loans

A VA loan is a government-backed mortgage option available to Veterans, service members and surviving spouses. VA loans are made by private lenders, like mortgage companies and banks, and not the Department of Veterans Affairs. These loans are similar to FHA loans, but they’re a little more flexible in terms of requirements, and there is no private mortgage insurance on these loans. Additionally, VA loans often come with a low or no down payment option. Veterans and service members can use the VA loan to purchase new or existing homes with $0 down payment.

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Jumbo Loans

A jumbo loan is a type of conventional loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA) for Fannie Mae and Freddie Mac, which in Albemarle County is 726,200. Borrowers must undergo more rigorous credit requirements than those applying for a conventional loan. The average annual percentage rate (APR) for a jumbo mortgage is often on par with conventional mortgages, while down payments are roughly 10% to 15% of the total purchase price. This type of mortgage is ideal for those looking to buy higher priced or luxury homes.

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While there are various types of mortgage options to choose from, take time to weigh the pros and cons before making a final decision. It's essential to work with a trusted mortgage professional who can guide you through the lending process, explain each mortgage type in detail, and help you find the right one that works with your specific needs.

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