The length of time you plan to live in a house should be an important factor in your choice of financing. If you plan to stay for 10 years or longer, a traditional fixed-rate mortgage may be your best bet. But if you plan on owning a home for less than 5 years, then the low introductory rate of an adjustable-rate mortgage or hybrid loan might make the most financial sense. In general, ARMs have the lowest introductory interest rates, followed by hybrid loans, and then traditional fixed-rate mortgages.

Loan Comparison Pros Cons Time Factor Fixed-Rate Loans Steady payments, easy budgeting. May protect against inflation Can be costly to refinance if interest rates drop. Attractive if you plan to stay in the house for many years Adjustable-Rate Loans May be easier to qualify for. Payments can drop with interest rates Payments vary over time and may rise substantially with interest rates. Consider if you plan to stay in the house for only a few years. Hybrid Loans Often have low introductory rates; flexibility May not have adjustment cap. Payments can rise over time. Can work well if you only plan to stay in house for a short time.

F.H.A. and V.A. Loans

If you find it difficult to qualify for a conventional loan, U.S. government loan programs from the Federal Housing Authority (F.H.A.) or the Department of Veterans Affairs (V.A.) may be helpful. Designed to promote home ownership by offering lower qualifying ratios and reduced down payments, F.H.A. and V.A. loans are not issued by the government, but instead are made by private lenders who are protected by government insurance in case the borrower defaults. Unlike conventional loans, both F.H.A. and V.A. loans have maximum allowable amounts and may require additional paperwork and inspections before the loan can be approved.