1. Choosing between types of mortgages
- 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.
- 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
- 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.
- 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
- 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.