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Fixed-Rate Mortgage (FRM)

  • Definition: A mortgage with a fixed interest rate for the entire term of the loan.

  • Interest Rates: Fixed for the life of the loan.

  • Down Payment Requirements: Typically 5-20% of the home's purchase price.

  • Loan Terms: Commonly 15, 20, or 30 years.

  • Qualification Requirements: Stable income, good credit score, and a reasonable debt-to-income ratio.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount.

  • Pros: Predictable monthly payments, stability.

  • Cons: Higher initial interest rates compared to adjustable-rate mortgages.

  • Best For: Homebuyers who plan to stay in their home long-term and prefer predictable payments.

Conventional Loan

  • Definition: Non-government-backed mortgages, including fixed and adjustable-rate options.

  • Interest Rates: Varies; can be fixed or adjustable.

  • Down Payment Requirements: Typically 5-20%.

  • Loan Terms: Usually 15, 20, or 30 years.

  • Qualification Requirements: Good credit score, stable income, and lower debt-to-income ratio.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; may include private mortgage insurance (PMI) if down payment is less than 20%.

  • Pros: Flexible terms, potentially lower costs if you have good credit.

  • Cons: Stricter qualification requirements.

  • Best For: Borrowers with good credit and stable income.

Adjustable-Rate Mortgage (ARM)

  • Definition: A mortgage with an interest rate that changes periodically based on a benchmark index.

  • Interest Rates: Initial lower rate, then adjusts periodically.

  • Down Payment Requirements: Typically 5-20%.

  • Loan Terms: Usually 30 years with an initial fixed period (e.g., 5, 7, or 10 years).

  • Qualification Requirements: Similar to fixed-rate mortgages.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; may include PMI if down payment is less than 20%.

  • Pros: Lower initial interest rates.

  • Cons: Potential for rate increases and higher payments over time.

  • Best For: Borrowers who plan to sell or refinance before the adjustable period begins.

Federal Housing Authority (FHA) Loan

  • Definition: Mortgages insured by the Federal Housing Administration.

  • Interest Rates: Generally lower than conventional loans.

  • Down Payment Requirements: As low as 3.5%.

  • Loan Terms: Usually 15 or 30 years.

  • Qualification Requirements: More lenient credit requirements, but must meet FHA guidelines.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount.

  • Pros: Lower down payments, easier qualification.

  • Cons: Mortgage insurance premiums required.

  • Best For: First-time homebuyers or those with lower credit scores.

Veteran Affairs (VA) Loan

  • Definition: Mortgages guaranteed by the U.S. Department of Veterans Affairs for military service members and veterans.

  • Interest Rates: Competitive, often lower than conventional rates.

  • Down Payment Requirements: Often no down payment required.

  • Loan Terms: Typically 15 or 30 years.

  • Qualification Requirements: Must be a veteran, active-duty service member, or eligible family member.

  • Upfront Fees: Closing costs typically 1-3% of the loan amount; VA funding fee varies from 1.4% to 3.6% depending on down payment and service history.

  • Pros: No down payment, no mortgage insurance, competitive rates.

  • Cons: Only available to eligible veterans and service members.

  • Best For: Eligible veterans and military service members.

US Department of Agriculture (USDA) Loan

  • Definition: Mortgages backed by the U.S. Department of Agriculture for rural property buyers.

  • Interest Rates: Competitive, often lower than conventional rates.

  • Down Payment Requirements: Often no down payment required.

  • Loan Terms: Typically 30 years.

  • Qualification Requirements: Must meet income and property location requirements.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; upfront guarantee fee of 1% of the loan amount.

  • Pros: No down payment, low interest rates.

  • Cons: Property location and income restrictions.

  • Best For: Low- to moderate-income buyers in eligible rural areas.

Jumbo Loan

  • Definition: Mortgages that exceed the conforming loan limits set by the Federal Housing Finance Agency ($726,200 for most parts of the United States).

  • Interest Rates: Higher than conforming loans due to increased risk.

  • Down Payment Requirements: Typically 10-20%.

  • Loan Terms: Usually 15 or 30 years.

  • Qualification Requirements: Higher credit score and lower debt-to-income ratio required.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; may include higher fees due to the loan size.

  • Pros: Allows financing for high-priced properties.

  • Cons: Stricter qualification requirements, higher interest rates.

  • Best For: Buyers of high-value properties.

Interest-Only Mortgage

  • Definition: A mortgage where the borrower pays only the interest for a set period.

  • Interest Rates: Typically adjustable rates.

  • Down Payment Requirements: Usually higher.

  • Loan Terms: Interest-only period usually 5-10 years, then converts to principal and interest payments.

  • Qualification Requirements: Higher income and credit score required.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount.

  • Pros: Lower initial payments.

  • Cons: Payments increase significantly after interest-only period.

  • Best For: Borrowers with fluctuating income or those planning to sell or refinance.

Balloon Mortgage

  • Definition: A mortgage with lower payments for a set period followed by a lump-sum payment.

  • Interest Rates: Generally fixed for the initial period.

  • Down Payment Requirements: Typically 10-20%.

  • Loan Terms: Short-term, usually 5-7 years.

  • Qualification Requirements: Similar to conventional loans.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount.

  • Pros: Lower initial payments.

  • Cons: Large lump-sum payment at end of term.

  • Best For: Borrowers expecting a significant increase in income or planning to sell/refinance.

Bridge Loan

  • Definition: Short-term loan used to bridge the gap between buying a new home and selling the old one.

  • Interest Rates: Higher than conventional rates.

  • Down Payment Requirements: Varies; often equity in the current home.

  • Loan Terms: Short-term, usually up to one year.

  • Qualification Requirements: Must have sufficient equity in the current home.

  • Upfront Fees: Closing costs typically 2-5% of the loan amount; higher interest rates and fees.

  • Pros: Provides funds to buy a new home before selling the old one.

  • Cons: Higher interest rates, fees, and risk.

  • Best For: Homeowners needing to purchase a new home before selling their current one.

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