5 Types of Mortgages You Can Choose From

Shaun Kirkpatrick

Buying a home can be one of the most confusing, exciting and expensive experiences of your life, especially if you plan on taking out a mortgage to finance the purchase. But don’t worry, choosing the right type of mortgage loan is way less painful if you know the lingo, and we’re here to help you with that! Here are 5 of the most common types of mortgages that you can choose from depending on what works best for your needs:


 

1. Conventional mortgages

Conventional mortgages are the type of home loans that aren’t insured by the federal government. They usually fall under two conventional categories- conforming and non-conforming loans.


 

In the case of a conforming loan, the amount being borrowed falls within the maximum limits set by the Federal Housing Finance Agency, while non-conforming loans don’t meet these guidelines. Jumbo loans that include large mortgage amounts that exceed the FHFA limits for different counties are some of the most common types of non-conforming loans.


 

2. Jumbo mortgages

Jumbo mortgages are conventional home loans that don’t conform to loan limits and require more in-depth documentation to qualify because your home’s price exceeds federal loan limits. 

 For the year 2021, FHFA set a maximum conforming loan limit for single-family homes at $548,250 for most of the country. Certain high-costing areas have a ceiling limit of $822,375. 


 

3. Government-insured mortgages

The U.S. government doesn’t issue mortgages directly but it does play a key role in helping more and more Americans become homeowners. There are three government-approved mortgage agencies: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veteran Affairs (VA loans) that issue mortgages to specific sets of people. 


 

4. Fixed-rate mortgages

Fixed-rate mortgages offer the borrower the same rate interest for the entire duration of their loan, which means the monthly mortgage amount remains the same. Lenders usually offer fixed loans in terms of 15 years, 20 years or 30 years.


 

5. Adjustable-rate mortgages

Unlike fixed-rate loans and the stability they offer, ARMs or adjustable-rate mortgages come with fluctuating interest rates that increase or decrease depending on market conditions. 

Many ARM products offer a fixed interest rate for a certain set of years before switching to a variable interest rate for the remainder of the term. 

Experts recommend looking for ARMs that put a cap on how much your interest rate or monthly mortgage rate can increase.