Buying and Selling

Mortgages: Which is right for you?

Fixed rate? Jumbo? FHA? Know the terms, so you can approach home buying with confidence

Young woman looking at phone sitting on a balcony
 

Buying a home could be one of –if not the—largest purchases of your life, which means you’ll likely need to take out a mortgage. So it’s important to fully understand your mortgage and the options you have available.

How do buyers feel about mortgages?

According to a recent survey by the National Association of Realtors, 63 percent of people feel that now is a good time to buy.1  Given their current financial situation, consumers think qualifying for a mortgage will be: 

  • 29% very difficult
  • 30% somewhat difficult
  • 21% Not very difficult
  • 21% Not at all difficult 

What are some types of mortgages?

Fixed vs. adjustable rate

  • With fixed-rate mortgage loans2 your monthly principal and interest payments will likely remain the same for the life of the loan, typically 15 or 30 years.
  • An adjustable-rate mortgage (aka ARM)3 begins with a fixed interest rate, but after a period of time switches to an adjustable rate. Common terms are 3, 5, 7 and 10 years.

Conforming vs. jumbo loans4

  • Conforming loans meet the underwriting guidelines of Fannie Mae and Freddie Mac.5 This means the size of the mortgage (which Fannie Mae and Freddie Mac will guarantee) is generally limited to $453,100 but can reach $726,525 in the highest-cost areas of the continental United States.
  • Jumbo loans (aka nonconforming loans) exceed the conforming loan size limits. Because of this, jumbo loans are not typically backed by Fannie Mae and Freddie Mac.5

Which mortgage might work for you?

When you are shopping for a mortgage, ask yourself how long you are likely to stay in the home and have a clear picture of your finances. This can help you figure out the length of your term, what monthly payments you can afford and more.

Long-term fixed-rate mortgages2

  •  Benefit: Security of fixed monthly payments.
  •  Consider if you plan to live in your home for 10 years or more.
Average 15- and 30-year fixed rate mortgage rates since 2010
 

Adjustable-rate mortgage (ARM)3

  • Benefit: Fixed monthly payments for a set period of time.
  • Consider if you plan to move or refinance while your term is fixed, and if you think you can sell the home at a profit while your term is fixed.
Average 5-year ARM rates since 2010
 

Understanding government-insured loans9

Federal Housing Administration Loans

  • The government insures the lender against losses that might result from borrower default.
    • You can make a down payment as low as 3%.
    • However, you’ll need to pay mortgage insurance, which could increase the size of your monthly payments.

VA Loans

  • Offered to military service members and their families, in which the U.S. Department of Veterans Affairs (VA) will reimburse the lender if there are any losses that result from borrower default.
    • VA borrowers can receive 100% financing for the purchase of a home (aka no down payment).
    • Visit www.benefits.va.gov/homeloans for basic service requirements. Applicants must also meet credit and income requirements.

U.S. Department of Agriculture/Rural Housing Service Loans

  • Offered to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing.”
    • Income must be no higher than 115% of the adjusted area median income, which varies by county.

Know your mortgage options.

Talk to an expert so you can find what’s right for you and buy a home with confidence.

1 “2018 Q4 Homeownership Opportunities and Market Experience (HOME) Survey,” December, 2018, National Association of Realtors

2 Rates and program information are deemed reliable but not guaranteed. Rates also assume a 30-day lock and are subject to change without prior written notice. All rates are subject to length of lock, pricing adjustments for credit score, loan-to-value, property location and additional factors based on loan program. Product parameters may vary due to additional restrictions, including but not limited to program/qualification requirements, actual loan amount and additional limitations/restrictions based on local market conditions.

3 Adjustable-rate mortgage (ARM) products have interest rates that may increase after consummation

4 “Fannie Mae: Loans, HomePath & All You Should Know,” June 16, 2017, Investopedia

5 “About Fannie Mae & Freddie Mac,” 2017, Federal Housing Finance Agency
Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgages from lenders, pool them together and sell them as mortgage-backed securities (MBS) to investors, for example. By packaging mortgages into MBS and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac bring in the secondary mortgage market investors who may not otherwise invest in mortgages. This helps expand the pool of funds available for housing.

6 30-Year Fixed-Rate Mortgages Since 1971, Freddie Mac

7 15-Year Fixed-Rate Mortgages Since 1991, Freddie Mac

8 5-Year Adjustable-Rate Mortgages (ARMs) Since 2005, Freddie Mac

9 “The Different Types of Mortgage Loans in 2017, Explained,” 2017, Home Buying Institute

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Related