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Which type of mortgage is right for you?

There are many different types of mortgages and features available when picking the right home loan for you. From the loan period to the interest rate, be sure you understand the options available to you before deciding. 

1. Choosing between types of mortgages

There are two main types of mortgages for a home purchase. 
 
Conventional or conforming loans 
 
This type of mortgage must meet certain government requirements—namely, the amount you can borrow.  
 
  • The limit on conventional loans varies depending on where you live, but for most of the United States, the maximum you can borrow with a conforming loan for a single-family home is $726,200 in 2023.1 
  • Visit the Federal Housing Finance Agency to find conforming loan limits for your area. 
Nonconforming loans 
 
Nonconforming loans come with a different set of requirements than conforming loans. There are two primary categories of loans—jumbo loans and Federal Housing Authority (FHA) loans. 
 
  • Jumbo loans: For home buyers who want to borrow more than the conforming loan limits, these loans may require a higher credit score—a FICO® score of 700 or more—and a lower debt-to-equity ratio than a lender would require for a conforming loan. For example, a 20% down payment may be required, compared to the option of putting down as little as 5% on a conventional, 30-year loan. 
  • Federal Housing Authority (FHA) loans: For first-time homebuyers, buyers with lower credit scores, or buyers who can only afford to make a small down payment, these loans have slightly relaxed requirements compared with conforming loans and jumbo loans. The minimum required down payment is 3.50%, and you may qualify for an FHA mortgage with a credit score of 580 or more.2

2. Interest rates: fixed-rate vs. adjustable-rate mortgages

Deciding between a fixed-rate and an adjustable-rate mortgage can have a big impact on what you can expect for your home payments each month, and whether that amount may change over time. Here’s the difference. 
 
Fixed-rate mortgage 
 
  • The interest rate on your loan stays the same for the life of the loan. Your monthly mortgage payment is fixed and won't change. 
  • If you’re risk averse or expect rates to rise, a fixed-rate loan might be better. You can lock in the current rate without worrying about future interest rate changes. If interest rates dip in the future, you can choose to refinance into a lower-rate loan. 
 
Adjustable-rate mortgage (ARM) 
 
  • The interest rate is fixed for a predetermined number of years, and then it fluctuates, within limits, for the remaining term of the loan. One thing to be aware of with an ARM is that after the fixed-rate period, you are subject to the unpredictable changes in interest rates. 
  • If you’re confident you’ll live in the home for only a few years, an ARM may be right for you. You won't need to worry as much about future rate adjustments, and you'll potentially get a lower rate than you could with a fixed-rate loan. 

3. Mortgage term lengths

The most common home loan terms are 15 and 30 years. The time period you choose affects not only your monthly mortgage payment, but the overall amount you’ll pay, with interest, by the time you’ve paid off your home.  
 
  • 15-year mortgage loan: Generally, it has a lower interest rate and a higher monthly payment. Over the length of the loan, you’ll pay lower interest costs. 
  • 30-year mortgage loan: Generally, it has a higher interest rate and a lower monthly payment. Over the length of the loan, you’ll pay more in interest.  

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Leader Bank is not affiliated with Fidelity, although, the parent company of Fidelity has a minority percentage, non-controlling interest in Leader Bank. 1. “FHFA Announces Conforming Loan Limit Values for 2023,” Federal Housing Finance Agency, November 29, 2022, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limits-for-2023.aspx. 2. Jennifer Bradley Franklin, “FHA loan requirements 2023,” Bankrate, January 01, 2023, https://www.bankrate.com/mortgages/fha-loan-requirements/#what-is-fha-loan.

This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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