When you purchase a home, chances are you won’t be able to buy it outright: you’ll need to borrow money and this loan is called a mortgage. Depending on your financial situation and your long-term plans, there are several options for choosing which type of mortgage is right for you.
- Fixed rate mortgage: For those who want predictability – your interest rate will stay the same for the life of the loan (typically either 15 or 30 years). A good choice if you plan on living in the home for 7 years or longer
- Adjustable rate mortgage (ARM): ARMs have a fixed rate for short period (usually 3 or 5 years) often at lower rate, then can change according to the interest rate index changes. Good to get started or if you don’t mind the unpredictability. Also good if you only plan to be in the home for less than 5 years
- Conforming or jumbo loans: Conforms to the guidelines of Freddie Mac and Fannie Mae, loan limits depend on location and number of units. Jumbo loans exceed those guidelines and have stricter qualifying standards
- Government backed loans: FHA loans, backed by the federal Housing Administration often have lower down payments, interest rates and more flexible qualifying requirements. VA loans are for veterans or the members of the military offering favorable terms