Adjustable-rate loans. Most adjustable-rate mortgages start at a relatively low fixed rate for an initial period – typically three or five years but sometimes seven or even 10. After that, your interest rate will increase or decrease annually based on the market rates at the time.
Some adjustable-rate loans set a limit on how high or low your interest rate can go each year and over the life of the loan.
These loans can be less expensive upfront than fixed-rate loans. But if you’re planning on staying in your home for longer than the initial fixed-rate period, you’ll need to make sure you can afford a potentially higher payment or you can refinance to a fixed-rate option.
An adjustable-rate loan could be worth considering if you’re only planning on living in the home for a few years or you’re confident you’ll be able to refinance into a fixed rate before the adjustable period ends. It could also make sense if you expect interest rates to go down in the future.
Government-insured loans. A handful of mortgages are backed by government agencies. These loans have special features and eligibility requirements that can make them a better fit for certain homebuyers.
FHA loans. Backed by the Federal Housing Administration, these loans may allow you to get into a home with a credit score below the standards for conforming loans. With a 3.5% down payment, you may qualify with a credit score of 580 or above, and with a 10% down payment, you may be able to qualify with a 500 credit score. That said, FHA loans charge upfront and ongoing mortgage insurance premiums that can be difficult to shake. Consider an FHA loan if your credit score isn’t high enough for a conventional loan.
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