With interest rates near historic lows, now is the terrific time to apply for a home mortgage or refinance an existing one.
Consumers must choose a loan that’s most appropriate for their financial circumstances. Here is an overview of today’s most common mortgages.
Conventional Loans — Also Called Fixed Rate Mortgages
The most common mortgages are fixed rate mortgages, where rates are stable for the life of the loan. This takes out all the guesswork, as borrowers will know their monthly payment throughout the life of the loan and nothing will change it. The most popular fixed–rate mortgages are 30 and 15–year terms. If you can afford a fixed–rate and plan to live in your home for 10 or more years, this may be the best option.
Adjustable Rate Mortgages (ARMs)
ARMs start with low rates for a specified period, and then fluctuate based on market conditions. The initial rates are significantly lower than fixed rate mortgages. However, borrowers must be prepared for the possibility of increased mortgage payments later. Because of the risk involved, ARMs are better suited for borrowers who plan to stay in their houses for shorter periods of up to 8 years.
Home loans insured by the Federal Housing Administration (FHA) are generally designed for first–time home-buyers and others who face modest hurdles in securing a mortgage. FHA mortgages generally feature lower down payments, flexible requirements, and consistent rates throughout the entire term.
For those who need larger loans than the conforming loan limits set by Fannie Mae and Freddie Mac — $417,000 for most of the country, and up to $729,750 in high–priced markets — jumbo mortgages are the way to go. Jumbo loans are higher risk to lenders and usually have higher mortgage rates and stricter mortgage criteria, including higher down payments and higher credit requirements.
There also are mortgages tailored for veterans, soldiers, first–time buyers, and even doctors. Research loan types, lenders and compare offers.
Your Prudential Real Estate Agent can help you each step of the way.