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Types of Mortgages

There are a variety of types of mortgages. Below, I discuss the main ones that will likely apply to your situation.

Conventional Fixed Rate Mortgage This is the standard type of mortgage. Generally available as 15, 20, or 30 year mortgages. They have a fixed rate, which means if you get your loan with a 3% interest rate now, it will still be 3% in 29 years (assuming you haven’t paid it off by then).

Generally, you will need to put at least 5% of the sales price as a downpayment if you use one these types of loans. So if you were going to buy a $175,000 home, you would need to have $8750 to pay toward the sales price yourself and the loan would cover the rest.

Usually if you put less than 20% down though you will have a small fee added to your house payment each month called Private Mortgage Insurance (PMI).

FHA Loan is a type of government backed loan that requires a smaller down payment (3.5% rather than 5%). FHA loans can be a good option if your credit score is not very good or if the smaller downpayment is critical for you.

They too will charge for mortagge insurance if you are putting less than 20% down.

VA Loans If you or your spouse are former or active military, you may qualify for a VA loan. These can be great opportunities requiring little down payment and no mortgage insurance. Be sure to educate yourself on VA loans though. Although they are not a one-time opportunity there are some boundaries on how you can re-use the VA loan opportunity in the future and you wnat to make sure you understand these.

USDA Loans If you are moving to a USDA eligible area (i.e. somewhat rural or small town), you may qualify for a USDA loan. The benefits to the USDA loan is smaller downpayment (could be zero) and looser credit requirements.

Adjustable-Rate Mortgages (ARM) As the name implies, this is not a fixed rate mortgage. Usually the rate will be fixed for a period of time and then will adjust at some frequency after that period of time. They are titled in different ways and teh numbers can mean different things. Some common ones you will see are a 3/1, or a 5/1, or a 7/1 ARM. In these the first number usually means the number of years that the rate will state the same. So if you are shown a 5/1 ARM with a rate of 2.9% then it will usually mean that it will be 2.9% for 5 years and then begin adjusting after that. If you will be selling the home or refinancing in less than 5 years then this won’t really affect you.

There is a lot to understand about ARMs. You should read more before embarking on one of these.

Physician Loans are generally ARMs. Once again, so long as the period of the initial fixed rate is longer than your residency, this should not affect you at all.