Which of These 5 Mortgages is Right for You?

There are five main types of mortgages available in the United States: fixed-rate, adjustable-rate, VA, FHA, and USDA. Each type has its own unique benefits and drawbacks, so it can be tricky to decide which one is right for you. This guide breaks down each mortgage type and help you figure out which one is best for your needs.

Which of These 5 Mortgages is Right for You?

These are some of the major types of mortgages:

  1. Fixed-rate mortgage
  2. Adjustable-rate mortgage
  3. VA loan
  4. FHA loan
  5. USDA loan

Here's a closer look at each so you can decide what's right for you.

Mortgage Type #1: Fixed-Rate Mortgage

A fixed-rate mortgage is just what it sounds like: a mortgage with a fixed interest rate for the entire term of the loan, usually 15 or 30 years. Your monthly payments will stay the same for the life of the loan, making it easier to budget. The main drawback of a fixed-rate mortgage is that your interest rate may be higher than current market rates, so you could end up paying more in interest over the life of the loan.

Related: What’s the difference between an inspection and an appraisal?

Mortgage Type #2: Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM) has an interest rate that changes over time. The initial interest rate is usually lower than a fixed-rate mortgage, but it can increase over time, which means your monthly payments could go up. ARMs are typically offered with terms of 3, 5, 7, or 10 years. The main advantage of an ARM is that you can get a lower interest rate than you would with a fixed-rate mortgage. The downside is that your monthly payments could increase if interest rates go up.

Mortgage Type #3: VA Loan

A VA loan is a mortgage loan backed by the U.S. Department of Veterans Affairs (VA). It's available to eligible veterans, active-duty service members, and reservists. The VA guarantees a portion of the loan, which means there's no down payment required and no private mortgage insurance (PMI) premiums. VA loans also offer competitive interest rates and flexible repayment terms. The main disadvantage of a VA loan is that you must be eligible for benefits, which can be a complex process.

Related: Can you buy a home after a bankruptcy?

Mortgage Type #4: FHA Loan

An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA). It's available to borrowers with credit scores as low as 580 and down payments as low as 3.5%. The main advantage of an FHA loan is that it's easier to qualify for than a conventional mortgage. The downside is that you'll have to pay mortgage insurance premiums (MIP), which will increase your monthly payments.

Mortgage Type 5: USDA Loan

A USDA loan is a mortgage loan backed by the U.S. Department of Agriculture (USDA). It's available to eligible borrowers in rural areas with low or moderate incomes. The USDA guarantees a portion of the loan, which means there's no down payment required and no PMI premiums. USDA loans also offer competitive interest rates and flexible repayment terms. The main disadvantage of a USDA loan is that you must be eligible for benefits, which can be a complex process.

Related: Common questions about getting a mortgage to buy a home in Lakewood

Which Mortgage Is Right for You?

Now that you know more about the different types of mortgages available, you can start to figure out which one is right for you. If you're a veteran or active-duty service member, a VA loan may be the best option. If you have good credit and want to avoid private mortgage insurance, an FHA loan could be a good choice. And if you're looking for a loan with no down payment and flexible repayment terms, a USDA loan may be the right option.

If you're still not sure which mortgage is right for you, talk to a lender about your options. They can help you figure out which loan program will best meet your needs.

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