Article: Various Types of Mortgages Do some homework before you apply for a mortgage. Think about what type of home you want, what your budget will allow, and what type of mortgage you might seek. Get a copy of your credit report, and make sure it's accurate; dispute any erroneous information to get it corrected. Be prepared to answer any questions that a lender might have of you.
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| Be open and straightforward about your circumstances. Read the complete article on how to apply for a mortgage. | Conventional Fixed Rate Mortgages | Adjustable Rate Mortgages (ARMs) | - Low risk
- 10- to 40-year terms
- Interest rate doesn't change
- Large down payment (compared to government mortgages) may be required
- Payment remains the same
| - Higher risk
- Initial interest rate often lower than conventional fixed rate mortgage
- Interest rate may go up or down
- Interest rate usually adjusted annually
- Rate adjustments may be limited by cap(s)
- Payment caps can result in negative amortization in periods of rising interest rates
| | Government Mortgages | Hybrid Adjustable Rate Mortgages (ARMs) | - FHA, VA, or bond-backed
- Interest rate sometimes lower than conventional fixed rate mortgage
- Variety of programs available
- Low down payment requirements
- Liberal qualifying ratios
- Attractive to first-time homebuyers
- Higher insurance costs may apply for FHA loans
- Payment remains the same
| - Higher risk
- Initial interest rate often lower than conventional fixed rate mortgage
- Fixed term for 1-10 years, then becomes a 1-year ARM
- May have option to convert to a fixed rate mortgage before becoming a 1-year ARM
- Interest rate may go up or down
- Rate adjustments may be limited by cap(s)
- Payment caps can result in negative amortization in periods of rising interest rates
| | Jumbo Loans | - Any loan over $359,650 (2005 figure, up from $333,700 in 2004) for a single-family home or condo
- Size of loan increases lender's risk, so interest rates are generally higher than for conventional fixed rate mortgages
- Jumbo loans are not available with government mortgages
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