Buying a home could be one of the giant steps you will take in life. However, you will need to decide on the best mortgage that will appeal to you. There are different types of mortgage, and it is paramount you consider your options and choose the one you’re most qualified for.
In this article, you will learn some of the various mortgages and what makes each of them distinct. When you compare the edges one mortgage has over the other, it will help you choose the best.
- Traditional Mortgage Vs. Government Mortgage
When you’re setting out to make a decision, you will need to consider if you want to conventional or, perhaps, a government mortgage. As you might already know, a traditional mortgage comes with a private lender or a federal company that isn’t insured by the government.
If you don’t qualify for a conventional loan due to a low credit score, a government mortgage will be the ideal option for you. You will need a specific credit score, down payment, and a debt-to-income ratio for a conventional mortgage.
- Conforming Vs. Non-Conforming Mortgages
If you have an impressive credit score, you might decide to seek for a conventional mortgage. In that case, there are two types of a conventional mortgage you should know – conforming and non-conforming mortgage.
The difference between these two mortgages is the amount of money you need to borrow. For a conforming mortgage, it has to follow the Federal Housing Finance Agency (FHFA) standards. As of the year 2020, the limit is at $510,000 in some US parts. In areas where the cost of living is pretty high, the limit has risen to $765,000.
A non-conforming mortgage, on the other hand, is for an amount that goes beyond the FHFA limit. Most of the time, it is referenced as a jumbo loan – precisely what it is.
- Government-Backed Mortgages: FHA, VA, Or USDA Loans
There is often a looser requirement for government-backed mortgage regarding credit scores, debt to income ration, and down payment. You will still need to go to a private lender to get a government-backed loan. Please take note that you will even need to specify that you’re opting for a government-issued mortgage.
- Fixed-Rate Vs. Adjustable Rate Mortgages
After making your choice, to either go for a conventional or government-backed loan, you have more options to make, which are fixed-rate and adjustable-rate loans. What these two types of mortgage focus on is the interest you pay on your loan.
For a fixed mortgage, it automatically locks in your rate for the duration of the loan. In the US, the mortgage rate is likely to increase or decrease. However, you will still have to pay the same interest rate in 30 years, just as you did in your first year.
Conclusion
Getting the ideal mortgage is possible when you understand the various types of mortgages at your disposal. If your credit score is perfect, with a large down payment and debt to income ratio, you can also opt for a conventional loan. But if there are some misfits, a government-backed loan will be ideal.