Most people who buy homes don’t have the assets to do so without obtaining a mortgage loan. But with the infinite amount of possible home loans out there with which to take, it’s hard to know which one may be right for you and your new home. As a borrower, it’s essential to fully understand the loan terms before committing to it, because there can be consequences.

Certain loans could be best suited to your circumstances, depending on where you live, how long you plan to stay in that home, and plenty of other variables, helping you save on down payments, fees, and interest rates. Take the time to educate yourself on the many types of home loans out there, so you don’t wind up defaulting or going into foreclosure. Here is a list of the most common types of home loans.

Fixed and Adjustable Loans
Essentially, all loans fit into either of these two categories.
• Fixed-rate: These mortgage loans keep the same interest rate throughout the entire term of repayment. Your monthly payments consistently stay the same and never change, whether it’s a 30-year of 15-year fixed-rate loan. These are beneficial for people who intend to spend most of their lives in the home.
• Adjustable-rate: These mortgage loans (ARMs) adjust from time to time, typically changing every year after the initial fixed-year period. There’s also the 5/1 ARM loan that keeps the fixed-rate for the first five years before adjusting every individual year following. Sometimes these rates can be lower than a full fixed-rate loan and are best meant for people with lower credits scores.
Conventional and Government-Insured Loans
Once you’ve determined whether you want a fixed or adjustable loan, there are two options for where the loan will come from. A conventional loan will typically come from a bank or other such lending institution, and provide the same fixed and adjustable option. Government loans are intended for specific situations.
• FHA loan: This is the Federal Housing Administration’s mortgage insurance program. It can drop your down payment from 20% to 3.5%, but will require you to pay for mortgage insurance, thus increasing your monthly payments.
• VA loans: These loans are offered to military service members and their families, providing 100% down payment financing.
• USDA loan: These loans are for rural borrowers, pending the meeting of specific requirements, like area median income.
Conforming Loans and Non-Conforming Loans
This distinction is based on the size of the loan.
• Conforming loan: This loan meets the underwriting guidelines of government-sponsored enterprises Fannie Mae and Freddie Mac and has a limit of $417K.
• Non-conforming loan: This loan, also known as a “jumbo loan,” may meet the same requirements, but exceeds the $417K limit. These are typically secured for luxury properties and people who can afford the loan terms and down payment.
If you’re a potential homeowner who would like more information on types of loans or would like to be introduced to a lender in the North Reading, Lynnfield, or Wilmington area of Massachusetts, the professional experts at Dooley & Mason Realty Group are here to provide you with diligent assistance. Get in touch with us today.