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Mortgage Shopping

What is a Mortgage?

Types of Mortgages

Most home loans are conventional mortgages. They’re issued by banks and credit unions, and often sold to government-backed entities like Fannie Mae and Freddie Mac with loan limits set by the Federal Housing Finance Administration (FHFA). While a conventional loan is the most common mortgage, it can be difficult to get. Borrowers need to have a high credit score (over 600) and also need to be able to afford a down payment of 20% or more or pay for private mortgage insurance (PMI).

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ARMs are home loans whose rates can vary over the life of the loan. Unlike a fixed-rate mortgage, which carries the same interest rate over the entirety of the loan term, ARMs start with a rate that’s fixed for a few years, and then adjust and increase over time. Your loan terms and the market will determine that adjustment period. ARMs often have a lower initial interest rate than fixed-rate mortgages. This option could be helpful to you if you don’t plan to stay in your home for long or plan to have more money in the future to cover the increased monthly payments. However, ARMs can be complicated to understand and may not offer many benefits when rates are overall low.

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Fixed-rate mortgages are one of the most common types of real estate loans. Every fixed-rate mortgage has a set interest rate, a set payment schedule and a set term, which is usually between 10 and 30 years. A fixed-rate mortgage is ideal when interest rates are low, you plan to be in the same home for many years or want to have consistent payments throughout the loan period.

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A government-backed mortgage is a loan offered to eligible individuals by traditional private lenders, like a bank or credit union, but insured by one of three federal government agencies: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) or the Department of Veterans Affairs (VA). This backing reduces risk for lenders so they can be more lenient with credit scores and down payments.  

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If you’re buying a luxury home, you’ll likely be looking at a jumbo mortgage to cover the cost. A jumbo loan is more than the lending limits set by the FHFA. Since they’re not guaranteed by any of the government-sponsored entities, lenders treat these larger mortgages as riskier. The qualification guidelines are often stricter. You should have credit scores in the 700 range and 20 – 30% of the total cost as a down payment when applying for a jumbo loan.

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A reverse mortgage is a special type of loan that allows you to convert part of the equity in your home into cash without having to sell your home. In a reverse mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions.

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Refinancing

Frequently Asked Questions

Last Modified on 02/04/25