Since you’d likely pay back your mortgage for a long period of time, it’s important you find a loan that meets your needs and budget.
Mortgage products have distinct guidelines in their formation. While some lenders may ask for 30% down payment, others ask for as small as 3% of the home’s price.
The Various types of Mortgages include;
- Conventional Mortgages
- Jumbo Mortgages
- Government-Insured Mortgages
- Fixed-rate Mortgages
- Adjustable rate Mortgages
Conventional mortgages
A conventional mortgage is a type of mortgage that’s not insured by the federal government. It is divided into two; conforming and non-conforming loans.
A conforming loan occurs when the loan amount falls within maximum limits set by the Federal Housing Finance Agency. While a non-conforming loan occurs when the opposite happens.
Conventional loans can be used for a primary home, second home or in investment property. You can get a conventional loan if you have a strong credit, a stable income, an employment history, and an advance payment of at least three percent.
Jumbo mortgages
These are conventional types of mortgages with non-conforming loan limits. Here, the home price exceeds federal loan limits. For 2021, the highest conforming loan limit for single-family homes in most of the U.S. is $548,250. In expensive areas, the ceiling is $822,375. Jumbo loans are more common in exorbitant areas, and require more comprehensive documents. Jumbo mortgages can be used to purchase a home in an expensive area, despite its competitive interest rates.
Government-Insured Mortgages
The U.S. government, despite not being a mortgage lender, plays a role in helping more Americans become homeowners. A government-insured loan can be gotten if you have low cash savings or less-than-stellar credit and can’t qualify for a conventional loan.
The three government agencies that back mortgages are: The Federal Housing Administration (FHA loans), The U.S. Department of Veterans Affairs (VA loans) and The U.S. Department of Agriculture (USDA loans).
FHA loans – If you don’t have a large down payment saved up, these types of home loans make it possible for you to be a homeowner. To get an FHA loan, you need a minimum FICO score of 580 for 96.5 percent financing with a 3.5 percent advance payment. FHA loans require two mortgage insurance premiums: one is paid in advance, and the other is paid annually for the life of the loan.
USDA loans – USDA loans help low income earners to be able to borrow money to buy homes in rural areas. The home must be purchased in a USDA qualified area. Some USDA loans do not require a downpayment for qualified borrowers with low incomes.
VA loans – VA loans are mainly reserved for the US military who are still active. It provides flexible, low-interest mortgages for them. VA loans do not require a down payment. A funding fee is charged on VA loans as a percentage of the loan amount to help with the program’s cost to taxpayers.
Fixed-rate Mortgages
Fixed-rate mortgages maintain the same interest rate all through your loan repayment, which means your monthly mortgage payment will always be the same. Fixed loans come in terms of 15 years, 20 years or 30 years. A fixed-rate mortgage is for you if you plan to stay in your home for at least seven to ten years as it offers stability with your monthly payments.
Adjustable-rate Mortgages (ARM)
Adjustable-rate mortgages vary in interest rates. It’s interest rate changes along with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the rest of the term. You must be ready for risks before getting an ARM. If you don’t plan to stay in your home beyond a few years, an ARM would save you a lot on interest payments.
Other types of Mortgages
Asides the above, there are other types of Mortgages you may find when making research for a loan. These include:
Construction loans: This type of loan is best for those that want to build a home. You may decide to get a loan separately for the project and then a separate mortgage to settle it, or join the two together. A higher advance payment is needed for a construction loan and proof that you can afford it.
Interest-only mortgages: This is a type of mortgage that allows the borrower to pay only the interest on the loan for a set period of time. After that time period is over, usually between five and seven years, the monthly payment increases as you begin paying your principal.
Balloon mortgages: This requires a large payment at the end of the loan term. With Balloon mortgages, you will make payments based on a 30-year term, but only for a short period of time, such as seven years. At the end of that time, you’ll make a huge payment on the outstanding balance, which can be demanding if you’re not ready.
CONCLUSION
Whatever the type of loans you choose or are interested in, you should check your credit report beforehand to see where you stand. You’re granted the legitimate right to one free credit report each year. From there, you can work on errors that may hinder you from getting a mortgage.
Since you’d likely pay back your mortgage for a long period of time, it’s important you find a loan that meets your needs and budget.
Mortgage products have distinct guidelines in their formation. While some lenders may ask for 30% down payment, others ask for as small as 3% of the home’s price.
The Various types of Mortgages include;
Conventional mortgages
A conventional mortgage is a type of mortgage that’s not insured by the federal government. It is divided into two; conforming and non-conforming loans.
A conforming loan occurs when the loan amount falls within maximum limits set by the Federal Housing Finance Agency. While a non-conforming loan occurs when the opposite happens.
Conventional loans can be used for a primary home, second home or in investment property. You can get a conventional loan if you have a strong credit, a stable income, an employment history, and an advance payment of at least three percent.
Jumbo mortgages
These are conventional types of mortgages with non-conforming loan limits. Here, the home price exceeds federal loan limits. For 2021, the highest conforming loan limit for single-family homes in most of the U.S. is $548,250. In expensive areas, the ceiling is $822,375. Jumbo loans are more common in exorbitant areas, and require more comprehensive documents. Jumbo mortgages can be used to purchase a home in an expensive area, despite its competitive interest rates.
Government-Insured Mortgages
The U.S. government, despite not being a mortgage lender, plays a role in helping more Americans become homeowners. A government-insured loan can be gotten if you have low cash savings or less-than-stellar credit and can’t qualify for a conventional loan.
The three government agencies that back mortgages are: The Federal Housing Administration (FHA loans), The U.S. Department of Veterans Affairs (VA loans) and The U.S. Department of Agriculture (USDA loans).
FHA loans – If you don’t have a large down payment saved up, these types of home loans make it possible for you to be a homeowner. To get an FHA loan, you need a minimum FICO score of 580 for 96.5 percent financing with a 3.5 percent advance payment. FHA loans require two mortgage insurance premiums: one is paid in advance, and the other is paid annually for the life of the loan.
USDA loans – USDA loans help low income earners to be able to borrow money to buy homes in rural areas. The home must be purchased in a USDA qualified area. Some USDA loans do not require a downpayment for qualified borrowers with low incomes.
VA loans – VA loans are mainly reserved for the US military who are still active. It provides flexible, low-interest mortgages for them. VA loans do not require a down payment. A funding fee is charged on VA loans as a percentage of the loan amount to help with the program’s cost to taxpayers.
Fixed-rate Mortgages
Fixed-rate mortgages maintain the same interest rate all through your loan repayment, which means your monthly mortgage payment will always be the same. Fixed loans come in terms of 15 years, 20 years or 30 years. A fixed-rate mortgage is for you if you plan to stay in your home for at least seven to ten years as it offers stability with your monthly payments.
Adjustable-rate Mortgages (ARM)
Adjustable-rate mortgages vary in interest rates. It’s interest rate changes along with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the rest of the term. You must be ready for risks before getting an ARM. If you don’t plan to stay in your home beyond a few years, an ARM would save you a lot on interest payments.
Other types of Mortgages
Asides the above, there are other types of Mortgages you may find when making research for a loan. These include:
Construction loans: This type of loan is best for those that want to build a home. You may decide to get a loan separately for the project and then a separate mortgage to settle it, or join the two together. A higher advance payment is needed for a construction loan and proof that you can afford it.
Interest-only mortgages: This is a type of mortgage that allows the borrower to pay only the interest on the loan for a set period of time. After that time period is over, usually between five and seven years, the monthly payment increases as you begin paying your principal.
Balloon mortgages: This requires a large payment at the end of the loan term. With Balloon mortgages, you will make payments based on a 30-year term, but only for a short period of time, such as seven years. At the end of that time, you’ll make a huge payment on the outstanding balance, which can be demanding if you’re not ready.
CONCLUSION
Whatever the type of loans you choose or are interested in, you should check your credit report beforehand to see where you stand. You’re granted the legitimate right to one free credit report each year. From there, you can work on errors that may hinder you from getting a mortgage.
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