Quick Comparison
| TYPE | WHO CAN APPLY | LENGTH OF TIME | BEST FOR |
|---|---|---|---|
| Fixed Rate (Conventional) | - Credit score at or above 620 - Ability to pay at least 5% down |
- Varies, 30 year terms most common - 10, 20, 25 year terms have higher interest rates but are often available as well. | - People planning on getting into a home longterm. - People wanting a consistant rate to pay each month. |
| Adjustable (Conventional) | A fixed conventional loan is a loan that has the same mortgage payments each month for either a 15, 20, or 30 year loan. | + 30-, 25-, 20-, 15- and 10-year terms are all available with fixed rate. + Buy a home with as little as 5% down (primary home). + Refinance up to 95% of your primary home's value. + Monthly payments remain the same for the entire loan term. | |
| Fixed Rate (FHA) | A fixed conventional loan is a loan that has the same mortgage payments each month for either a 15, 20, or 30 year loan. | + 30-, 25-, 20-, 15- and 10-year terms are all available with fixed rate. + Buy a home with as little as 5% down (primary home). + Refinance up to 95% of your primary home's value. + Monthly payments remain the same for the entire loan term. | |
| Adjustable (FHA) | A fixed conventional loan is a loan that has the same mortgage payments each month for either a 15, 20, or 30 year loan. | + 30-, 25-, 20-, 15- and 10-year terms are all available with fixed rate. + Buy a home with as little as 5% down (primary home). + Refinance up to 95% of your primary home's value. + Monthly payments remain the same for the entire loan term. |
A FIXED RATE LOAN
30 YEAR FIXED
A 30 year fixed conventional loan is a loan that has the same mortgage payments for 360 months. Conventional loans typically are harder to qualify for than FHA loans and require a slightly higher down payment. However, in some cases rates can be lower and have lower closing costs. Also, monthly mortgage insurance is usually less or can be nothing with 20% down payment.
20 YEAR FIXED
This type of loan is the same as the 30 year fixed rate loan except the life of the loan is 240 months as opposed to 360 months. Since the loan is being paid slightly faster than the 30 year fixed rate loan, monthly payments for this type of loan are higher than the 30 year fixed rate loan. Some Lenders allow for a lesser rate.
15 YEAR FIXED
This type of loan is the same as the 30 year fixed rate loan except the life of the loan is 180 months as opposed to 360 months. Since the loan is being paid faster than either the 30 year fixed rate loan or the 20 year fixed rate loan, monthly payments for this type loan are higher than the other two loans. Generally, the longer a lender agrees to keep the interest rate "fixed," the greater the risk to the lender, therefore, in most instances, interest rates on 15 year fixed rate loans are slightly lower than on 20 or 30 year fixed rate loans.
Adjustable
3/1 ARM
This type of loan has monthly payments that are based on a 30 year repayment schedule and the interest rate remains fixed for the first three years. After that time the interest rate (monthly payments) may change year after. This is called the "adjustment period." The new rate is based upon changes in a financial index and is calculated by adding a specified amount to the index. The amount that is added to the index is called the margin. Let's say the index equals 4.5% at the time of adjustment and the margin equals 2.50%, the new interest rate would be 7%. However, adjustable loans usually have an adjustment cap. So if the adjustment cap is 2%, the new rate would be 6.5%. There is also a lifetime cap which limits how much the rate can go up or down during the life of the loan. These loans can work out well for people who stay in their house for the short term. Conventional loans typically are harder to qualify for than FHA loans and require a slightly higher down payment. However, in some cases rates can be lower and have lower closing costs. Also, monthly mortgage insurance is usually less or can be nothing with 20% down payment.
5/1 ARM
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first five years.
7/1 ARM
This type of loan is similar to the 3/1 ARM except for the fact that the interest rate remains fixed for the first seven years.
Federal Housing Administration Loans
Basic Info
An FHA (Federal Housing Administration) loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. FHA loans are not for everybody. Nevertheless, they are a great help to some borrowers. FHA loans allow people to buy a home with a down payment as small as 3.5%. Other loans might not allow such a low down payment.
Who can get one?
Almost anybody can get an FHA loan. There are no income limits. However, there are limits on how much you can borrow. In general, you're limited to median home prices in your area. To find the limits in your region, visit HUD's Website. To qualify for an FHA loan, you'll need to have reasonable debt to income ratios. You don't need perfect credit but you will need to have a credit score of at least 620.
Federal Housing Administration Loans
VA Loan
30 Year Fixed VA Loan
A VA loan is perhaps the most powerful and flexible lending option on the market today. Rather than issue loans, the VA instead pledges to repay about a quarter of every loan it guarantees in the unlikely event the borrower defaults. That guarantee gives VA-approved lenders greater protection when lending to military borrowers and often leads to highly competitive rates and terms for qualified veterans. Far and away, the most significant benefit of a VA loan is the borrower's ability to purchase with no money down. Apart from the government's UDSA's Rural Development home loan and Fannie Mae's Home Path, it's all but impossible to find a lending option today that provides borrowers with 100 percent financing. VA loans also come with less stringent underwriting standards and requirements than conventional loans. In fact, about 80 percent of VA borrowers could not have qualified for a conventional loan. These loans also come with no private mortgage insurance (PMI), a monthly expense that conventional borrowers are required to pay unless they put down at least 20 percent of the loan amount.