“The Universe of Mortgage lending has gotten to the point where there is a place in it for everybody”. – Joe Mays
Knowing the terminology of mortgage loans can help you pick among the different types of loans. As soon as you have determined your budget and down payment amount, and look over your credit, you’ll be able to identify what loan will meet your needs.
If you want to know your home mortgage you can use our free mortgage calculator.
This process can be completed quickly if you have a good real estate agent by your side!
In this article, we will look at different types of mortgage loans that you can choose from when buying a house. These are some of the most common types of mortgage loans to consider.
VA (Veteran Affairs) Mortgage
1. FHA Mortgage
FHA mortgages are home loans insured by the Federal Housing Administration. FHA loans are government-backed and designed to assist borrowers who have modest incomes.
If you have a low credit score and want to buy a home, an FHA loan can help you.
Federal Housing Administration will not lend the money to you directly, a FHA approved lender, a financial institution or bank will do the lending to you. The caveat is, FHA guarantees your loan to the lender, but they still require you to purchase a mortgage insurance so the risk on all parties will be lessen in case you default on the loan.
2. Conventional Mortgages
Mortgage loans that aren’t government-backed are referred to as conventional mortgages. There are two types of conventional loans: conforming and non-conforming loans.
Conforming loans are those that fall within the maximum limits set by the Federal Housing Finance Agency. Mortgage loans that do not meet these guidelines are considered non-conforming loans.
Private mortgage insurance is generally required under many conventional loans when you put down less than 20 percent of the home’s cost.
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3. Adjustable-Rate Mortgage
A buyer who plans on moving out of the home within a few years or paying off their loan early might want to consider this option. In contrast to fixed-rate loans, adjustable-rate mortgages (ARMs) have variable interest rates that are affected by 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 remainder of the term.
3/1 adjustable-rate mortgage (ARM) is a 30-year mortgage product that carries a fixed interest rate for the first three years and a variable interest rate for the remaining 27 years. After the initial three-year fixed period, the interest rate resets every year. – bankarate.com
4. Jumbo Mortgages
A jumbo mortgage is a conventional type of mortgage with non-conforming loan limits. If this is the case, then the mortgage limits are exceeded.
In areas with higher housing costs, jumbo loans tend to occupy a greater market share, and generally require more extensive documentation to be approved. The reason for a more troublesome process is that, these type of loans exposes the lenders in more credit risk.
Furthermore, it is not guaranteed by Fannie Mae Federal National Mortgage Association (FNMA) and Freddie Mac Federal Home Loan Mortgage Corp. (FHLMC).
5. VA (Veteran Affairs) Mortgage
VA loans are mortgages backed by the Department of Veterans Affairs. Those who are retired or in the military and want to buy a home with a low down payment can take advantage of this type of mortgage.
Benefits of having a VA Loan:
· No Down payment
· Low Interest Rates
· Don’t need a Private Mortgage Insurance
· Easy Application
· Closing Costs are Lower
· Foreclosure Avoidance
· You don’t have to worry about Prepayment Penalties
Mortgages will not be a burden if you fully understand its mechanics and nature. You need to carefully consider your financial capabilities if you are planning to get a loan to have a high approval rate.
Leverage home loans to your advantage especially if you want to move into another property (to upgrade) or if you want to start investing in the Real Estate World.
NK Real Estate Group based in MD, VA and DC can guide you if you want to dive deeper into this topic.