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Mortgage loans can be categorized several different ways.

Category 1: Fixed-rate vs. adjustable-rate loans

Generally, home loans fall into two categories: fixed-rate and adjustable-rate mortgages (ARM). La section below further explains these options. These loans, also known as conventional loans, are issued for a specific term. Your monthly payments are structured so you can pay your loan within that time period.

Category 2: Government vs. conventional loans

There are two types of loans: conventional and government-secured (unconventional). A conventional loan is not insured or guaranteed by the government. Government-secured loans are backed by a federal agency, like the Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA). These loans are insured by the government to protect the lender in case of default. They generally offer lower interest rates and down payment requirements. However, they do have specific eligibility requirements. Por ejemplo, VA loans are only available to veterans, and FHA loans have loan amount restrictions based on the county where you live. You typically don't see these restrictions with conventional loans.

Category 3: Conforming vs. jumbo loans

Conventional mortgages also are classified as conforming or non-conforming. Conforming loans generally have stricter qualification criteria. Non-conforming loans, also known as jumbo loans, don't conform to federal guidelines. They typically are used for buyers who don't have a large down payment, have lower credit scores, or want to purchase a higher-priced home. Maximum loan amounts can change on an annual basis. Your loan officer can explain these in more detail.

Category 4: Loans with or without mortgage insurance

If your down payment is less than 20% of your home’s purchase price, most lenders require that you obtain private mortgage insurance (PMI) and pay the premiums. Costs may vary based on loan type, your credit profile, and your actual down payment amount.

There are two main types of mortgages:

Fixed-rate mortgage

Características

• Interest rate stays the same for the life of the loan.
• The total principal + interest payment is the same every month.
• The loan is fully paid off by the end of the loan term and considered fully amortized.

Considerations

• Provides stability and security with stable, fixed payments.
• Interest rate may be higher than that of an adjustable-rate loan.

Adjustable-rate mortgage (ARM)

Características

• Interest rate is only fixed for an initial period.
• At the end of the fixed-rate period, the interest rate can adjust either up or down on a monthly, but typically annual, basis.
• The total principal + interest payment may increase or decrease over the life of the loan.
• Loan is fully paid off by the end of the loan term and considered fully amortized.

Considerations

• Interest rate may fluctuate once the fixed-rate period has ended, meaning your payment amount may change.
• Initial interest rate may be lower than that of a fixed-rate loan, resulting in increased buying power.
• Offers flexibility of having a lower payment initially.
• May make sense for buyers who plan to sell before the fixed-rate period ends.

Tip

When shopping for a mortgage, use the Annual Percentage Rate (APR) to compare the total cost of a loan from different lenders.

Each type of mortgage has pros and cons, so it's important to choose one that's right for you, your needs, and your financial situation. For example, a lower monthly payment may be the most important factor for you, or your primary goal may be to pay off the loan sooner. A Truist mortgage loan officer can help you sort out your options and weigh the different mortgage types.

Understanding how much home you may qualify for is a crucial step.

Key terms

An adjustable-rate mortgage (ARM), also known as a variable rate mortgage, is a loan in which the interest rate is adjusted up or down periodically based on a pre-selected index. ARM products have interest rates that may increase after a fixed period of time.

Amortization is the repayment of mortgage debt with periodic payments of both principal and

interest, calculated to pay off the loan obligation at the end of a fixed period.

The Annual Percentage Rate (APR) is the cost of credit on a yearly basis, expressed as a percentage. It’s required to be disclosed by the lender on the Loan Estimate. Because it includes certain costs paid to obtain a loan, it’s usually higher than the interest rate stated in the mortgage note. The APR aids in comparing the true cost of loans offered by lenders.

Private mortgage insurance (PMI) allows a mortgage lender to recover part of its financial losses if a borrower defaults on a loan.

Preaprobación^{Divulgación 1} determines the maximum amount you may be able to borrow. During the preapproval process, you'll discuss your finances (debt, income, and assets) with your loan officer. The loan officer will then provide you an estimate for a mortgage you may qualify for. Remember that a preapproval is not the same as approval of your loan application.