Before you go getting a mortgage, it’s important to know what you’re getting into. With as big of a prospect as homeownership in front of you, you need to make intelligent decisions, after all. For those that are looking to buy a home, but don’t have a few hundred thousand dollars lying around, you’ll need a mortgage to complete your purchase. Mortgage payments use principal and interest to help you pay for a property over time while giving a bit more in interest fees to your loan provider than your property was initially worth. If you can find the right mortgage loan options for your unique financial situation, you can finally join the prestigious ranks of American homeowners in 2023.
The 6 Core Mortgage Types
To find the right mortgage for your financial situation, it’s important to gain a concrete understanding of the six primary, core mortgage types that Americans have access to. Discovering the mortgage loan options that work best for you is key. If you’ve been looking to find a home worth investing in, this guide will help you determine the best way to achieve your goals. By hiring a financial advisor, mortgage broker, or loan officer, you can more easily determine which of the six following options will best serve you as you pursue your dreams of homeownership:
1. Conventional Mortgages
The most common type of mortgage on this list, conventional mortgages are meant for borrowers that have at least good credit, and a stable employment history. If you’ve been faring well in your life so far, a conventional mortgage will likely be exactly what you’ve been looking for. Currently, you’ll need to be able to pay around 3% of the loan amount as a down payment, and you’ll need a credit score of at least 640 if you want to qualify for a quality conventional mortgage, however.
2. Government-Backed Mortgages
If you’re in a lower-income area, are a veteran, or are part of another government-supported group, you can get many excellent loan options through the US government. VA-backed loans are the most popular, and come with a lack of down payment needs, and significantly decreased application fees. Even USDA and FHA loans have many advantages to them. Doing your research, and seeing if you qualify for a government-backed mortgage loan, can help you achieve the dream of homeownership in 2023.
3. Conforming Mortgages
If you’re looking to get a mortgage that will not suddenly blow up in your face down the line, the limitations placed around conforming mortgage loans can prove attractive. These conforming loans are legally bound by maximum loan limits, which are set by the federal government and can change from year to year. For this reason, getting a conforming mortgage loan during a time when the maximum loan limits are in your favor is crucial. That being said, the FHFA does set a higher maximum loan limit depending on where in the country you live. Although there are many advantages to using a conforming mortgage, you’ll need to do plenty of research before pulling the trigger on this type of mortgage loan.
4. Nonconforming Mortgages
Due to the specified loan amounts and underwriting guidelines that nonconforming loans have to abide by, only certain financial institutions can offer them. If you’ve looked into jumbo mortgage loans in the past, you’ll have a greater understanding of what a nonconforming loan looks like. These loans are riskier and are meant for those with lower credit scores and DTI. Thankfully, however, they do provide a potential path to homeownership for the millions of Americans who are struggling in today’s often-harsh economic landscape.
5. Fixed-Rate Mortgages
If you want a mortgage that will not suddenly become unwieldy a decade down the line, then you want to secure a fixed-rate mortgage. These mortgages have an interest rate that is set in stone and are typically designed to be repaid within a few decades. Many people who want to settle down in a house, and remain there for the rest of their foreseeable future, choose to go with a fixed-rate mortgage loan.
6. Adjustable-Rate Mortgages
For those that have more money to spend, and want a larger loan amount, adjustable-rate mortgages are more frequently used. These mortgages are attached to ever-changing interest rates that are directly tied to the US economic market. If you feel confident about your financial future, however, the many amazing advantages of adjustable-rate mortgages will be sure to charm you. Just make sure you do not take the risk associated with this loan if you cannot afford to. The more research you do before accepting a mortgage loan offer, the better, after all.
