Here's a sampling of what you might find when you go shopping for a mortgage:
The Fixed-Rate Mortgage. Mortgages of this type carry a static, locked-in interest rate that will remain unchanged for the life of the loan. The fixed rate ensures that a borrower's monthly payments will not change.
Adjustable-Rate Mortgage (ARM). An ARM carries a adjustable interest rate, which means that the borrower's monthly payment amount may fluctuate during the life of the loan depending on whether the financial markets interest rates rises or drops. ARMs can be attractive at the outset (usually a fixed term of 3,5 & 7 years) because the initial interest rate may be low, but the borrower must be prepared for potential rate increases.
Conventional Mortgage. A conventional mortgage is a private loan that is not backed by the government.
Government Loan. There are several types of government loans available, such as an FHA Loan and a VA Loan. FHA loans are not provided by the government; rather, they are secured through private lenders and are federally guaranteed – meaning that a default on the loan will not result in a loss to the lender. VA loans are available to members of the armed forces and certain members of their families. FHA and VA loans are attractive because they may require a low or no down payment.
Jumbo Loan. These loans are for larger amounts than standard conforming loans (which carry limits that are set by Fannie Mae and Freddie Mac). Because these loans are a higher risk for lenders, they generally carry a higher interest rate for the borrower. Jumbo loans are usually used to purchase luxury properties.
There are additional loans available for specialized buyers. Some borrowers are in need of a bridge loan, construction or rehab loan, or even a reverse mortgage. There are various programs available to address these needs.
No matter your circumstances, it's a wise idea to speak to a mortgage banker about your financing options to determine which type of loan is the best fit for you. A Mortgage Banker will take into consideration your financial picture, the type of property you wish to buy, your credit standing, and other factors that will affect your "best fit" mortgage loan. From there, it's just a step further to pursue pre-approval for a loan, which can arm you with the preliminary financing assurance to get your started on the home buying process.