3. Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) are a type of mortgage loan with an interest rate that can fluctuate over time. Unlike fixed-rate mortgages, ARMs have an initial fixed-rate period, typically ranging from 5 to 10 years, after which the interest rate adjusts periodically based on market conditions.

One popular type of ARM is the 5/1 ARM, where the interest rate remains fixed for the first five years and adjusts annually thereafter. The rate adjustment is usually based on an index, such as the U.S. Treasury rate or the London Interbank Offered Rate (LIBOR), plus a margin determined by the lender.

ARMs often have lower initial interest rates compared to fixed-rate mortgages, making them attractive to borrowers who plan to sell or refinance their homes before the fixed-rate period ends. However, it’s important to consider that the interest rate can rise significantly after the initial fixed-rate period, potentially leading to higher monthly payments.

4. High-Balance Loans

High-balance loans are a type of conventional loan that exceeds the standard conforming loan limit set by Fannie Mae and Freddie Mac. These loans are still considered conforming because they adhere to the loan limit set by the Federal Housing Finance Agency (FHFA) for high-cost areas.

The high-balance loan limit for single-family homes in 2023 is $1,089,300, which is 150% of the standard loan limit. High-balance loans allow borrowers to borrow above the standard loan limits in areas where home prices are higher than average.

Borrowers who are looking to purchase homes in high-cost areas but still want the benefits of a conventional loan may find high-balance loans to be a suitable option.

5. Jumbo Mortgages

Jumbo mortgages are similar to high-balance loans in that they exceed the conforming loan limits set by Fannie Mae and Freddie Mac. However, jumbo mortgages do not conform to the guidelines established by these government-sponsored enterprises.

Jumbo loans are typically used to finance luxury homes or properties in high-cost areas. Due to the larger loan amount, jumbo mortgages often require a higher credit score and a larger down payment, usually at least 20% of the home’s purchase price.

In recent years, jumbo mortgage rates have been relatively comparable to conforming conventional loans. Borrowers who need a mortgage that exceeds the conforming loan limits may consider a jumbo mortgage for their high-value property.

6. FHA Home Loans

FHA loans are government-backed mortgages insured by the Federal Housing Administration (FHA). These loans are designed to help borrowers with lower credit scores and limited down payment funds qualify for homeownership.

To qualify for an FHA loan, borrowers typically need a credit score of at least 580 and a minimum down payment of 3.5% of the home’s purchase price. Borrowers with credit scores between 500 and 579 may still be eligible but will be required to make a larger down payment of at least 10%.

FHA loans have mandatory mortgage insurance premiums (MIP) that protect the lender in case the borrower defaults on the loan. If the down payment is less than 10%, the MIP is required for the entire loan term. However, borrowers who put down at least 10% can request to have the MIP removed after building at least 20% equity in the home.

7. VA Loans

VA loans are mortgage loans available to eligible military servicemembers, veterans, and their spouses. These loans are guaranteed by the U.S. Department of Veterans Affairs (VA) and offer several benefits, including no down payment requirement.

In most cases, VA loans do not require a down payment, making homeownership more accessible to qualified military borrowers. While the VA does not have a minimum credit score requirement, VA lenders typically expect to see a credit score of at least 620.

VA loans are a great option for qualified military borrowers who want to purchase a home without the burden of a down payment.