Mortgages got you down?

Buying a home is an investment; one that provides more than just greater financial stability. Buying a home gives you freedom you wouldn't necessarily have. When it comes to buying though the most frequently asked question is what type of mortgage should I get? Here we will look at the most common ones so you can make an informed decision! 

Fixed Rate Mortgage

• These mortgages can come in 15-year or 30-year terms.
• With this loan, your interest rate and monthly payment stay consistent for the length of the loan.
• This type of loan is popular when mortgage rates are low because borrowers can lock in a low interest rate.
• The shorter the term period the higher the monthly payment. 
• As of February 2023, a 30-year fixed rate has an average interest rate of 7.02%, respectively a 15-year fixed rate is averaging at 6.3%. 

Adjustable Rate Mortgage

• You’ll make fixed payments during an initial fixed-rate period, and then the interest rate will adjust based on the market.
• Typically, people will choose an ARM when interest rates are higher because they offer a lower interest rate initially and then the rate will adjust based on the market.
• Most ARMs also come with rate caps that limit how much your rate can vary during the adjustable period. This period could last anywhere from 6 months to 10 years.
• The most common type of adjustable rate is a 5/1 ARM.
  • Features a fixed rate for the first 5 years as ARMs come with unpredictable monthly payments.
  • Current average rate is 5.71%.
• This type of mortgage is best for homebuyers who expect to move or refinance before the adjustable period has ended.

FHA Mortgage

• Federal Housing Administration insures the mortgage.
• Easier to qualify for with a lower credit score and the ability to put a down payment as low as 3.5%. 
• Perfect for those buyers who don't qualify for a conventional loan.
• Downsides:
  • Mortgage insurance premiums are required for homebuyers who put less than 20% down.
  • You can't cancel FHA mortgage insurance once you're reached 20% equity in your home.

VA Mortgage

• Backed by the Department of Veteran Affairs.
• VA loans are only available to eligible service members (having served for at least 90 consecutive days without a break in service), veterans, and their spouses.
• In most cases, there is down payment required, no prepayment penalty, and no mortgage insurance.
• Borrowers usually get access to better rates and fewer closing costs. On the flip side, VA loans require a funding fee. This fee keeps loan costs low for taxpayers. Fee ranging from 1.4% - 3.6% of the loan amount depending on down payment and if you've taken out a VA-backed purchase loan before.

USDA Mortgage

• Issued or insured by the U.S. Department of Agriculture. 
• Only available to borrowers seeking a home loan for a property in an eligible rural area.
• There are household income limits that vary on the type of USDA mortgage. 
• You can put as little as $0 down, but a guarantee fee is required for the entirety of the loan. 
• For 2023, the fee is 0.65% of the loan amount upfront and 0.35% of the loan amount annually. 

Jumbo Mortgage

• A home loan for an amount greater than the conforming loan limit, which varies by location. 
• For 2023, the conforming loan is $726,200, but you can borrow more in high-cost areas.
• If you are looking to buy a home that exceeds the conforming loan limit in your area, you'll need a jumbo mortgage.
• Pros:
  • Available in fixed and adjustable-rate options.
• Cons:
  • They are more difficult to qualify for than conforming loans.
  • Typically require 10% down with strict credit score requirements.