For those looking to buy a home, it might seem a little daunting, especially when you consider how many mortgage types there are. Here’s a simple list of 5 loan types with a basic description of each so you can begin to make the best decision on how to acquire your dream home.
1. CONVENTIONAL / FIXED RATE MORTGAGE
This is the most common of the mortgage types. The interest rate and the monthly payments don’t change over time. The most common of these is the 30-year term. It should be noted that a 15-year term will give a better interest rate and get your mortgage paid off in half the time.
2. INTEREST-ONLY MORTGAGE
This type allows the borrower to pay interest only for the first five to seven years. Obviously, you can pay more if you’d like, but you don’t have to. So, if you’re budgeting lean, this could be a helpful way to go. Once that five- or seven-year period is done, however, normal payments including principal and interest, will kick in.
3. ADJUSTABLE RATE MORTGAGE (ARM)
For this mortgage type, the interest rate can change (typically upward) over the lifespan of the loan. This might not sound like an amazing way to go, but it does make it possible for someone to pay low interest rates to start with on an expensive home.
4. FHA LOANS
FHA stands for Federal Housing Administration. They tend to be very attractive to first-time home buyers because they require a low down payment and your credit doesn’t have to be stellar to qualify. The drawbacks are the borrower is required to pay for mortgage insurance (insurance that protects the lender in case you default) and the house must meet certain criteria from an appraisal by an FHA-approved appraiser.
5. VA LOANS
If you’ve served in a branch of the military, these loans are designed for you. Need a down payment? No. Require mortgage insurance? No. Can work with a credit score that’s low? Yep!
There are other mortgage types and even more information about the ones listed above. If you’d like more information about the different mortgage types available to you, feel free to contact us and we’ll get you pointed in the right direction.
MidSouth Community Federal Credit Union partners with Credit Union Financial Services (CUFS) to bring a variety of affordable and trustworthy mortgage products to serve our members. If you are thinking of buying a home, stop by one of our branches, call CUFS directly at 1.800.503.6855, or visit cufs.org for an expert consultation.