If you’re planning to buy a home, you’ll most likely need a mortgage to help finance your purchase. It’s important to choose the right home loan that not only meets your financial needs but also helps to save you money and keep your payments within your budget. Not sure which mortgage is right for you? Here’s an overview of some of the most popular home loans to help you learn more about your home financing options:
Fixed Rate Mortgage - The fixed rate mortgage is the most common home loan used by buyers. As the name suggests, the interest rate is locked in throughout the life of your loan. The fixed rate mortgage is usually offered for 15 or 30-year terms. This mortgage is ideal if you plan to live in your home for a long time and want predictable, stable monthly payments. However, fixed rate loans can be offered at a higher interest rate compared to other types of mortgages.
Adjustable Rate Mortgage (ARM) - Buyers who chose an adjustable rate mortgage lock in a low interest rate for a set period of time, usually 2 - 5 years. After that time passes, the interest rate could go up or down, depending on market conditions. The adjustable rate mortgage can be a gamble for homeowners, especially if they plan to live in their home for a long time. However, if you plan to move within a short time and secure a low interest rate, this loan could help you save some money on your home.
Federal Housing Administration (FHA) Loan - Established in 1934, this mortgage option is a loan backed by the federal government. If your finances or credit aren’t in the best shape, this mortgage could be right for you. FHA loans typically require a lower credit score and lower down payment to purchase a home. However, there are limits to how much you can borrow, depending on which state you live in. The FHA loan also requires buyers to purchase mortgage insurance. The FHA loan is commonly offered as both a fixed rate and adjustable rate mortgage. Not every lender will offer FHA loans, so be sure to do some research before choosing a lender.
Jumbo Loan - This type of loan is offered to help finance homes listed above the limit covered by conventional home loans. The limit varies by state, but it is typically offered at $424,100 or more. Like the FHA loan, jumbo loans are also offered as fixed rate and adjustable rate mortgages. Since you’re borrowing more, you can expect to face more stringent requirements to qualify for a jumbo loan, including a larger down payment and a high credit score.
We hope these summaries helped to give you a better understanding of the home loans available to buyers. However, we always recommend talking to your trusted lender for the most up-to-date and accurate advice about your mortgage options. Check out our Preferred Vendors list for our favorite lenders, or contact us for a recommendation by one of our expert agents. Curious to learn more about home financing? Check out our Financing an Austin Home page for more information.