What is the Type of Mortgage for Me? [infographic]
What is the right type of mortgage for me?
Buying a home is exciting but can also be stressful. Use this handy guide to the many types of mortgages so you can determine which might be best for you.
Fixed-rate mortgages: the interest rate on this mortgage never changes. It’s the most common loan type to finance a home purchase over 15-30 years.
Who is it for? Those living in their home at least 7-10 years. Protected if interest rate rise. Typically, will pay more interest.
Jumbo loans: best for more expensive properties. This is a common loan type in higher-cost areas.
Who is it for? Those purchasing properties valued over $453,100k (varies In some states source: FHA). Generally competitive interest rates. Need to have at least a 700 FICO score.
Adjustable-rate mortgages (ARM): the interest rate will vary throughout the life of the loan. it begins fixed over a certain period of time, but then resets either yearly or monthly.
Who is it for? Those planning to own their home for only a few years. Borrowers can take advantage of falling rates without the hassle of refinancing. Varying rate can make monthly mortgage unpredictable (and maybe higher than you can afford)
Interest-only mortgage: allows the borrower to only pay the interest on the loan during the first 5 or 10 years rather than the entire payment.
Who is it for? Those comfortable with the risk of predicting whether or not they will be able to pay off the loan at its deadline. Monthly payments for a mortgage are often lower. Will inevitably have to pay the whole loan principal which could mean much higher payments.
USDA or rural home loans. Allows low to moderate-income borrowers to buy homes in more rural areas. This zero-down mortgage option is appealing for those who can’t afford a traditional mortgage.
Who is it for? Rural borrowers. Certain loans do not require a down payment if income is low enough, and credit score requirements are lower. If you put a small amount of money down, you will have to pay a mortgage insurance premium.
Bridge loans: used for owners who have properties that are on the market and are not yet sold. They allow the seller to borrow equity from their current home to afford another home during this time.
Who is it for? People needing short-term money for a new home and already own a home that’s not sold. Typically has a fast application, approval and funding process. Larger payments and interest rates can vary.
FHA Loans (federal housing administration): allows borrowers to buy a home regardless of it they have a smaller down payment or lower credit score. These loans are insured by the federal housing administration.
Who is it for? Those with less money for a down payment. Able to make a down payment for as low as 3.5% of the price (as long as you have a FICO score of 580). Required monthly insurance premium; not all homes qualify for FHA loans.
VA Loans (veterans affairs): guarantees housing programs to help buy, build, repair or refinance a home for veterans, active duty device members, selected reserve or national guard and spouses.
Who is it for? Veterans, active duty military, and family. Can receive 100% financing for the purchase of a home (no down payment) and are government guaranteed. Limited to those who qualify.
First-time homebuyer loans: helps people become homeowners by providing financial assistance and easier approvals to those who qualify.
Who is it for? Individuals who have never owned a home. Small (or no) down payment required, loan subsidies, and many other perks. Limited to those who qualify and not available in all areas.
Reverse mortgage: allows older homeowners with equity in their home to get paid by a lender while living in a home.
Who is it for? Those aged 62 plus with enough equity in their home. Ability to continue living in your own home and tap into its equity. May outlive your mortgage proceeds and fees may be higher than other loan types.