Types of Mortgage Loans, Explained- Which is Right for You?
by Rick Delgado
on Monday, August 25th, 2014 at 7:55am.
When buying a new house, most buyers would need to get a mortgage to finance their home purchase. When you sit down with your mortgage professional, you will see that there are a few types of mortgage loans for you to choose from. Which program is best for you however? It can be a little overwhelming in trying to decide which program is right for you, so here is an explanation of some of the more popular mortgage types so you can make an education decision.
FHA Loan is designed to help people who don’t have a lot of money to put down in a house. The FHA loan only asks for 3.5% of the purchase price as a down payment, while the 30 year fixed mortgage typically asks for 20% of the purchase price. The catch in a FHA loan is that you have to pay upfront and monthly FHA mortgage insurance premiums, which could increase your mortgage payment by a substantial amount.
VA loan programs are designed to help veterans, reservists, active duty personnel or eligible family members to buy a house. There are many options in a VA loan, such as a variety of fixed-rate and adjustable rate options, low to no down payment, and it doesn’t require the buyer to pay monthly mortgage insurance (although you typically would need to pay a one-time VA funding fee).
30-Year Fixed Rate Mortgage
The 30-year fixed rate mortgage is by far the most popular mortgage program out there. This is a great mortgage program for those who see themselves living in a house in the long run. In this program, your rate and payment stay fixed for 30 years, and will never change. You are basically locked in to your payment schedule until you pay off your loan.
Adjustable Rate Mortgage
With an adjustable rate mortgage, your rate is only locked in for a specific amount of time (5 years, 7 years, and 10 years are the standards), then it will adjust annually based on current interest rates. There is a cap for how high your interest rate can get to. This program is popular for those who do not think they will be in their house for a long time so they can take advantage of the lower interest rate.