Types of mortgage loans
There are several types of mortgage loans that you may be interested in. Requirements are different for many of them such as the amount of money you have for down payment, your credit score, if you are a veteran, how long you plan on living in the property and more. A few of the common loan types are listed below.
The most common loan type is fixed-rate mortgages. They offer an interest rate that stays the same for the duration of the loan. While these loans are available as 10-year, 15-year and 20-year loans, 30-year fixed-rate mortgages are the most popular because they have the most affordable payments.
With fixed-rate loans, the payment is the same each month. If rates decline, you have the option to refinance your property to a lower rate.
The interest rate on an adjustable rate mortgage (ARM) can change each year of the loan. If rates increase so does your monthly payment. These loans are considered riskier than a traditional fixed-rate mortgage because the market can fluctuate and a payment that you were once comfortable with can increase significantly over time.
FHA and VA Loans
A FHA loan may be the best option for a home buyer with limited funds for closing or if they have a high debt-to-income (DTI) ratio. FHA loans only require a 3.5% down payment which is lower than the typical 5% down that is required for a fixed or adjustable rate loan.
VA loans are government-insured mortgage loans available to military veterans, active-duty members, some military reservists and National Guard members, and spouses of members who died in the line of duty. They require no down payment.