Arlene Maloney: So you found the perfect home and now you are faced with an array of mortgage options. Understanding the differences between common loan products can help you make an informed choice with your selection.
Mortgages typically come in two main loan types; government-backed and conventional, and two different rate types; fixed and adjustable. Lets take a closer look at each.
The two most common types of government loans are FHA and VA. FHA loans provide lower down payment option, as low as 3.
VA loans have the potential of no money down, but are available only to service members, veterans and spouses who meet certain criteria. Keep in mind there may be additional fees associated with these loans.
Conventional loans require a higher down payment, ranging from 3-20%, and may have lower rates and fees. Once you have determined what loan type is right for you, you will need to decide between fixed versus adjustable rate options.
With the fixed rate mortgage your interest rate and your principal and interest payment remains the same for the life of your loan, which is typically 15 or 30 years.
With an adjustable rate mortgage, also called an ARM, your interest rate and monthly principal and interest payment remains the same for an initial period, usually 5, 7 or 10 years. After that period the loan rate adjusts annually based on then current interest rates.
A mortgage professional can help answer any questions you may have regarding loan types and rate options, and can help guide you through the process.
As you can see, choosing a loan option depends on your individual circumstances and goals, but with this information you will be able to make the right decision for your needs.