What Type of Home Loan is Right For You?

​There are many different types of home mortgages that a first time homeowner or seasoned homeowner can use to buy their home. To pick the one that is right for you, you need to know what you can afford and the good and bad things about each loan that you are considering.

The Conforming and Non-Conforming Loans have one distinct difference between them. The amount of the loan determines if it is considered a conforming or non-conforming loan. If the loan is $417,000 or less, it is considered a conforming loan. That means the loan adheres to the GSE terms. If the loan is over the $417,000 amount, it does not adhere to the GSE terms and is non-conforming.

Conventional loans are another type of loan that can be defined as a “jumbo” or “conforming” loan depending upon the terms of the loan. The government usually will not consider this type of loan reliable because it is not as authentic as the government wants it to be. Most government loans are classified as reliable and can be taken out for huge sums. The most notable of these loans are the VA loans and the FHA loans.

An Adjustable Rate mortgage or ARM is a slightly tricky loan. It begins with a low interest rate that is compounded on the principle amount of the loan. As the loan goes on, the interest rate will change but the payments will not reflect this change. It is not until the introductory time period is over that the loan is adjusted and the payment goes up. It can increase a small amount or it can increase by thousands of dollars every month. This also creates negative equity within the house, so that attempting to refinance into a better loan is harder for the homeowner.

The fixed rate mortgage, which is what many people have, “locks in” a specific mortgage interest rate for the life of the loan. That means that the homeowner can finance their home loan of $150,000 for 30 years at an interest rate of 5.4%.