Home Financing Fixed Rate Mortgage Adjustable Rate Mortgage

When financing a home the minimum amount of your down payment will depend on your selected mortgage program. An FHA mortgage will require 10% down payment for a home purchase when your credit score is 580 or below. This amount reflects the recent increase in the upfront mortgage insurance premium to 2.25%. A minimum of 3.5% down payment is a requirement for applicants with credit scores above 580. Should you happen to go the conventional mortgage route then down payments up to 20% of the house cost can be required. There are online conventional loan lenders that offer down payments less than 20% with some being as low as 5%. It is also possible that you may need to purchase private mortgage insurance if you are able to finance with a lower down payment loan. Private mortgage insurance, or PMI, is in place to protect the lender should the loan be defaulted.

Fixed Rate Mortgage Loans

An advantage of a fixed rate mortgage is that over the term of the loan you know the fixed loan payment since the interest rate is set. This option is usually is best for the home buyer planning to stay in the residence for a period in excess of 5 years. The terms of fixed rate mortgages range from 15, 20 or 30 years. On the other hand the downside to a fixed rate mortgage is that the interest rate is higher that an adjustable rate mortgage and will not be beneficial for a homeowner planning to move within a short period of time.

Adjustable Rate Mortgage Loans

A great advantage to an adjustable rate mortgage, or ARM, is that its flexibility is best for a homeowner planning to either move or refinance in less than 5 years. If interest rates decline the borrower can take advantage of a lower fixed rate. This is frequently the best choice for young homeowners who’s financial circumstances will improve and can later absorb a possible higher fixed rate mortgage. Sometimes however this can cause a financial burden on the borrower of the loan if they lack financial planning ahead of time for the rise in interest rate from the initial introductory rate.

Conventional Mortgages

Any mortgage that is not insured by FHA or VA is a conventional mortgage. Due to the lack of being insured, conventional mortgages require large down payments or Private Mortgage Insurance (PMI). PMI is required when Loan to Value exceeds 80%. PMI insures the top part of the loan amount. PMI ceases when the loan is amortized down to 78% of the original appraised value. Our online mortgage calculator can help you in figuring out how much of each payment covers these costs.