If you're shopping for a home, you should be shopping for a home loan as well. Where you live, how long you plan to stay, and other variables can make certain loans better suited to your circumstances. Home buyers hoping to jump into the mortgage market will find three basic types of loans:
Conventional Mortgage
This is the most commonly used type and usually has the best rates. You’ll typically need at least 10% for a down payment and good credit. Can be for 15 or 30 years or “interest only” where you are not paying any principal in your payment. With a fixed-rate home loan, your interest rate remains the same for the life of the loan, and the payment is split into equal monthly payments for the duration.
FHA Mortgage
Thought of like the first time home loan program but available to anyone. The down payment is only 3.5% and is more forgiving of lower credit scores. The interest rates are not as attractive as Conventional, but qualifying for the loan isn’t as tough either.
Adjustable Rate Mortgage (ARM)
These have rates that start out lower than the current rates, but can change after one, two, or five years – usually upward! Typically, there will be a cap on the initial interest rate reset that is higher than all of the subsequent rate adjustments, and a cap on the amount the rate can change over the life of the loan.
