There are many loan types available today, and lenders continually create new ways to attract new homeowners. Selecting a type of home loan is a very important decision, as your choice can affect your standing as a borrower. That said, it is essential to take the time to fully understand all the details before making a commitment.
Below, we offer some basic information about the type of loans available today.
Fixed-rate and adjustable-rate loans
One of the first choices borrowers have to make is whether to choose a fixed-rate or adjustable-rate mortgage loan. All loans fall under these two categories, while some of them are considered a mix of both, or a “hybrid.”
Here are the main differences between the two:
- Fixed-rate mortgage loans offer the same amount of interest during the entire repayment period. This means you pay the same monthly payment, which will remain unchanged. This applies even to 30-year fixed-rate loans.
- Adjustable-rate mortgage loans or ARMs have interest rates that change from time to time. Interest rates on these types of loans usually change each year, after an initial period of having a fixed rate. ARMs are considered a “hybrid” product since these begin with unchanging interest rates before transitioning to an adjustable rate.
Both types of loans come with their own pros and cons. To put it simply, fixed-rate loans offer more stability, but you’ll have to deal with higher interest charges. ARMs on the other hand, offer lower interest rates compared to fixed-rate loans but only from the start, with increased rates and monthly payments expected later on.
Conventional and government-insured loans
Another choice a borrower has to make is to decide between a conventional or government-insured loan. Conventional loans are not insured by the federal government, while home loans such as the FHA, VA, and USDA loans are backed by the government.
As an example, the Federal Housing Administration or FHA loan is an insurance program backed by the Department of Housing and Urban Development, which is under the federal government. An FHA loan allows borrowers to make a down payment as low as 3.5% of a home’s price, although payments for mortgage insurance (which increases the number of monthly payments) are required.
Jumbo loans and conforming loans
Mortgage loans are also divided into categories based on the size of the loan. The amount you’re looking to borrow will determine whether you fall under the jumbo or conforming category.
Here’s the difference between the two:
- A conforming loan falls under the maximum size limits set by Fannie Mae and Freddie Mac, the two government-managed corporations that buy and sell mortgage-backed securities.
- Jumbo loans exceed the loan limits set by Fannie Mae and Freddie Mac. This type of loan typically presents more risks to the lender, mainly due to its size. This explains why borrowers are typically required to have excellent credit and larger down payments. Jumbo loans also come with higher interest rates.
Mortgage Lenders in Florida
Here are some of the best mortgage companies available in Florida: