Buying a home can be overwhelming, but there are many different types of loans that are designed for a wide range of needs. Deciding on the type of mortgage early can help you decide what kind of home your can afford. Use this guide to explore your options and find the right loan for you.
Fixed Rate Mortgage
Best for: Buyers that are purchasing or refinancing their forever home.
A fixed rate mortgage is one with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. These types of loans typically come in terms of 15 or 30 years. The benefit of this kind of this mortgage loan option is the predictability of the payments, because it allows you to better plan your future finances and your monthly expenses more precisely.
Adjustable Rate Mortgage
Best for: Buyers who know they will be relocating in the near future, or who plan on paying off the loan in a few years.
Adjustable rate mortgages (ARM) give the buyer the opportunity to take advantage of low interest rates. Unlike fixed rate mortgages, ARMs have rates that can change with the market conditions. As a result, there is a risk involved in getting this type of loan. However, with risk there can be reward, in the form of potentially saving a substantial amount of money in your first few years of homeownership.
Best for: Buyers that plan on purchasing a home in a highly competitive market. Requires great credit, a high income, and a large down payment.
A Jumbo Mortgage is a loan that exceeds the limits set by the Federal Housing Finance Agency. This mortgage loan option is common for high-end homes and allow buyers to borrow money to buy a home in a higher cost area. While the financing requirements are much more strict than conventional loans, buyers can potentially take advantage of lower interest rates.
Best for: Low Credit Score and Low Down Payment. The go-to loan program for buyers with weaker credit.
A Federal Housing Administration (FHA) loan is a mortgage that is insured by the FHA and issued by an FHA-approved lender (Vellum). This mortgage loan option is designed for low-to-moderate-income borrowers because it requires a lower minimum down payment and lower credit scores than many conventional loans.
VA Mortgage Loan Option
Best for: Military and Low Down Payment. No down payment loans for borrowers with a military connection.
Must meet one or more of the following requirements:
Served 90 consecutive days of active service during wartime
Served 181 days of active service during peacetime
Have 6 years of service in the National Guard or Reserves
You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability
VHDA Mortgage Loan Option
Best for: First-time homebuyers and current homeowners who are thinking about buying in Areas of Economic Opportunity.
The VHDA mortgage loan option is a 30-year fixed-rate mortgage and has down payment grants or federal tax breaks available.
First-time homebuyer’s household income can’t exceed the lower program limits
Grant funds may only be used with eligible VHDA loans
Buyers must have a ratified sales contract on the home before the grant funds can be reserved
Eligible VHDA first mortgage much be locked prior to reserving grant funds