The fixed-rate mortgage is by far the most popular choice for first-time homebuyers, particularly the 30-year fixed rate mortgage. With this loan, your interest rate will never change, providing a stable monthly payment for the life of the loan.
The adjustable rate mortgage, or ARM, can be a valuable option if you want to save money for a short period of time. Adjustable-rate mortgages include an initial interest rate that is usually lower than a fixed rate. But when that initial period ends in three, five or seven years, the payment will adjust higher depending on current market conditions.
Conventional mortgages are based on rules set by government-sponsored entities Fannie Mae and Freddie Mac. They’re the most common type of home loan because of the flexibility they offer. Down payments can be as low as 3%, though mortgage insurance is required if you make less than 20% down payment. However, PMI can be canceled as your home value goes up, which makes it a popular choice for home buyers.
Conventional mortgages can have fixed or adjustable rates.
Government insured loan programs
There are a number of government loan programs available that provide additional options for homebuyers depending on their financial situation and homebuying needs.
FHA loans are insured by the government and are a common choice of first-time homebuyers. They’re easier to qualify for if you have a lower credit score.
The VA loan program allows eligible active duty and veteran members of the armed forces to purchase a home with a low down payment or none at all.
USDA loans help low- to moderate-income families to buy homes in designated rural areas.
Most government-backed loans are available in fixed or adjustable rates.
Conventional mortgages sold to Fannie Mae and Freddie Mac have limits on how big a loan you can get, set at $484,350 in most parts of the country and $726,525 in high-cost areas. In some more expensive areas of the country where real estate prices are higher than these limits, a jumbo loan may be the best and only option for financing a home purchase.
Jumbo loans usually require much more scrutiny and documentation than other loan types, but qualified buyers often find the rates are lower than conventional mortgage rates. You can find fixed-rate or adjustable-rate jumbo loans.