- Fixed-rate loan: the interest rate doesn’t change throughout the life of the loan, typically 15-30 years. This means the monthly loan payment shouldn’t change, making it a relatively low-risk loan. Requires a down payment.
- Adjustable-rate mortgage: loan begins with a lower rate for a fixed period of time (5-10 years); after this period, the interest rate will adjust approximately once a year in relation to current interest rates. Monthly payments can fluctuate, so this loan is best for those who plan to move and sell their home before their fixed-period is up.
- FHA loan: a Federal Housing Administration loan is a government-backed loan that allows homeowners to make a down payment of as little as 3.5% versus the standard 20%. There are several requirements such as limited loan amounts and minimal payment flexibility. They are fixed-rate mortgages of 15 or 30 year terms. Mortgage insurance is required.
- VA loan: a Veterans Affairs loan is for veterans who have served 90 consecutive days during wartime, 180 days during peacetime, or six years in the reserves. They are government-backed and require no down payment or mortgage insurance.
- USDA loan: the USDA Rural Development loan is government-sponsored and requires no down payment with discounted mortgage rates. This loan is designed for rural areas struggling financially. However, an individual’s debt cannot exceed their income by more than 41% as mortgage insurance is required.
- Bridge loan: also referred to as a gap loan or “repeat financing;” the current and new mortgage payments are bundled into one. An excellent option for those purchasing a home before selling their previous residence; once the home is sold, the mortgage can be paid off and refinanced.