Buying a home will be, for most people, the biggest financial investment in life. Since 99% of us cannot afford to buy a home outright, we will have to obtain a home loan from a bank or other financial institution. There are many mortgage options, and an inexperienced home buyer can quickly become overwhelmed when looking at hundreds of thousands of dollars and decades-long commitments. This article should serve as a simplified guide to the different types of home mortgage loans in order to educate the home buyer.

Some of the various types of mortgages include fixed rate mortgages, adjustable rate mortgages, government insured loans, conventional home loans.

Fixed-rate mortgages carry the exact same interest rate for the life of the loan. This means that your monthly payment to the bank will be exactly the same every month, year after year. These types of loans are usually packaged as 15- or 30-year loans. A 15-year package will naturally have higher monthly payments than a 30-year package because it needs to be paid off in less time.

Adjustable rate mortgages, or ARMs, are loans whose interest rate varies by market. Some ARMs remain fixed for a certain number of years and then change at an adjustable rate, while some ARMs have an adjustable rate for the initial years and then remain fixed. These are hybrid ARMs. An example of a hybrid would be a 5/1 ARM loan where there is a fixed rate for the first five years, after which that rate will be adjusted to market each year.

A conventional loan simply means that it is not backed by the government. A government-insured loan is a government-backed loan, which ensures that the lender does not default on the part of the borrower. There are a few different types of government-insured loans; VA loans, FHA loans, USDA / RHS loans.

A VA loan is a loan offered by the US Department of Veterans Affairs, a Va loan is offered to serving and active military service members and their families. A great advantage of this type of loan is that a borrower can receive 100% of the loan in advance, that is, without a down payment.

An FHA loan is a loan made by the Federal Housing Administration and administered by the Department of Housing and Urban Development (HUD). This type of loan allows you to pay a very low down payment, as low as 3.5% of the total loan, unfortunately this means that you have to pay more in monthly payments.

A USDA / RHS loan is a loan from the United States Department of Agriculture, this program is overseen by the Rural Housing Service (RHS). This loan is designed for low-income borrowers who live in rural areas and have trouble obtaining financial assistance from traditional lenders.

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