Selection Guidelines

Trying to understand the differences between mortgage products can be confusing. When considering which mortgage type is right for you, begin by comparing the following:

• Mortgage Rates
  Rates vary from mortgage to mortgage and from lender to lender. Certain mortgage types and terms typically have lower interest rates.

• Mortgage Types and Terms
  Fixed-rate and adjustable-rate mortgages each have their benefits, and so do different loan terms (a loan term is simply the length of the loan). It's important to consider your individual situation, needs, and goals to determine the best mortgage type and term.

• Other Factors
  Be sure to factor in any points, fees, and other costs such as closing costs when comparing different mortgages by looking at the annual percentage rate (APR). The APR will provide you with an overall look at the cost of your loan. A loan with a lower interest rate may not necessarily be the most cost effective over the life of the loan.

Look at the big picture. Make sure you understand the specifics of the loan you choose:

• If your mortgage rate is very low, know if it is an introductory rate or an ARM "teaser" rate – and when it can change. An interest rate that is not always the best option if it increases dramatically over the life of the loan.
• Think about your future plans and your plans for your home. If you want to own the home for a long time, you might choose a different mortgage type and term than if you plan to sell in a few years.
• Take into account your budget when choosing a mortgage, If your mortgage is an adjustable-rate mortgage, make sure your current income would allow you to afford a higher monthly mortgage payment in the event of an interest rate increase. 
• Compare your options side-by-side with our mortgage worksheet.

Additional Options for Low Down Payments

Many first-time homebuyers think it's impossible to buy a home without a 20% down payment. There are many low down payment options available. Ask your lender about mortgages with low down payment options, including:

• Down payments as low as 3% to 5%.
• Zero down payment options that only require you to put a nominal amount into the transaction.
• Additional sources of down payment money, such as federal, state, and local government agencies; non-profit organizations; and family members.
• Options for people with limited incomes in high-cost areas.

But, be realistic. If you don’t have the money for a down payment, you may want to start a savings plan rather than try to obtain a mortgage with a low down payment.