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Mortgage Matters - How to Choose One That is Right for You

Mortgage Matters - How to Choose One That is Right for You

When it comes to purchasing a new home, buyers are typically excited about choosing the options that are most important to them. Flooring, countertops and other fixtures may top their lists. But does that excitement carry over to a buyer’s home loan? Not always.
When you apply for a mortgage, you may feel like your only options are approval or denial. But there are choices when it comes to your home loan. Before you blindly apply for a mortgage, know which one may be best for your next home purchase. Here are four of the most common types of mortgages and a few facts about each to help you choose which one is right for you:
1. Conventional
A conventional home loan may be the most common mortgage option out there. It’s probably the one your mom or dad told you about. But some things have changed about this loan option over the years. Instead of requiring a 20% down payment as was previously customary, some conventional home loan options require buyers to put down as little as 5% of a home’s purchase price. The term of the mortgage is typically 30 years and the annual percentage rate is fixed for that duration. Of course, a better credit score will qualify buyers for a better annual percentage rate.   
2. Federal Housing Administration (FHA)
This common type of mortgage is backed by the federal government, which gives buyers some leeway when it comes to the down payment. With an FHA loan, buyers are able to put down as little as 3.5% of a home’s purchase price. Typical mortgage length remains at 30 years, but credit score requirements drop a bit for qualification. Instead of having to meet down payment or stringent credit qualifications, buyers can expect to pay monthly private mortgage insurance, or PMI, when they pursue an FHA loan. For first-time homebuyers, an FHA loan can be a great way to get a foot in the door and purchase a home.
3. Adjustable Rate
As opposed to a conventional or FHA loan, an adjustable rate mortgage, or ARM, does not carry a fixed interest rate for the duration of the loan. Instead, the interest is fixed at the beginning of the loan, typically for up to seven years. After that point, the rate can increase or decrease on an annual basis. Down payment requirements may vary, but a buyer’s credit score should be very good to secure an ARM. For homeowners who know they may move within the first few years of owning a home, an ARM may be a desirable way to secure a low interest rate.
4. Veterans Affairs (VA)
This often desirable, 0% down payment mortgage option does not carry PMI—and it offers a competitive annual percentage rate over a fixed length of time. It’s definitely an attractive mortgage option if you can get it. However, a VA loan is only available for one type of home buyer, the men and women who’ve served our country. If you are a veteran, a VA loan may be the obvious choice in a mortgage when you purchase a home.  
When it comes to your first, or next, mortgage, know that you have some options. Do your research and decide what type of home loan is best for you before you apply for preapproval and start searching for homes.