Understanding your options when it comes to a mortgage loan is crucial. There are many types of mortgage loans available to homebuyers, and each type of loan has several options. Below you will find the main types of mortgage loans available to homebuyers. If you are a first-time buyer, be sure to consider the programs that are available to you through city, county, state and Federal entities. You may qualify for counseling services and/or down payment and closing cost assistance.
Fixed-rate: A fixed-rate loan offers a monthly payment that is known and does not change. Most fixed-rate mortgages are for loan terms of 15 or 30 years.
Adjustable-rate or ARM: After a predetermined initial term, the interest rate on an adjustable-rate mortgage loan is re-set periodically. This ensures that the rate reflects current market interest rates. For example, a 3/1 ARM loan offers a fixed rate for the first three years, adjusting once a year thereafter. A 5/1 ARM loan offers a fixed rate for the first five years, adjusting yearly thereafter.
Although, the standard in the industry for locking your loan interest rate is typically 30 days, a variety of extended rate lock options are available to help you secure a rate well in advance of the completion of your new home. The most popular options include 30-year fixed and 15-year fixed-rate loans.
Once you’ve decided on a loan type, take the next important step — getting pre-qualified and pre-approved for your loan. This will help you get a clearer, more realistic picture of your financial options and allow you to narrow your home search, saving you time and frustration down the road.