Types of Mortgage Loans
It is always an exciting experience to buy a home but it is easy to be overwhelmed once the matter of financing enters the picture. Don’t worry because as long as you know what you are getting into, you can look forward to having a smooth buying experience.
To give you a good idea, here are the different types of mortgage loans available for you:
Conventional Mortgages
Conventional mortgages are home loans that are not under the insurance of the federal government. These loans have two types – non-conforming and conforming loans. Conventional loans are best recommended for borrowers with stable employment history and income, strong credit, and at least 3% down payment.
Jumbo Mortgages
A jumbo mortgage is a conventional type of mortgage with non-conforming loan limits. It means that the price of the-home goes beyond the federal loan limits. The maximum conforming loan limit in 2021 for single-family houses in most parts of the United States is $548,250, with a ceiling of $822,375 in some high cost areas. These loans are ideal for more affluent buyers who want to purchase a high-end house.
Government-Insured Mortgages
While the United States government is not a mortgage lender, it still plays a role in assisting more Americans to buy their dream home. These loans are great for those who have less than stellar credit or low cash savings and are not qualified for conventional loans.
Fixed-Rate Mortgages
A fixed rate mortgage keeps the same rate of interest throughout the life of the loan that means that the mortgage payment every month always remains the same. Fixed loans usually come in terms of 30 years, 20 years, or 15 years. This kind of mortgage provides stability with monthly payments if you have plans to stay in the house for at least 7 to 10 years.
Adjustable-Rate Mortgages
Adjustable-rate mortgages are different from the stability of fixed rate loans because of their fluctuating interest rates that could go down or up depending on the conditions of the market. Most of these mortgages have fixed interest rate for several years prior to the loan changing to a variable interest rate for the rest of the term. You have to be comfortable with some level of risk before you get an ARM. It can help you save big on the interest payments if you have no plans to stay in the house beyond several years.
Other Forms of Home Loans
Aside from the common types of mortgage loans above, there are still some other types that you might find when looking for a loan:
- Construction loan
This is a good choice if you are planning to build a house. It requires a higher down payment as well as a proof that you can really afford it.
- Balloon mortgages
These are loans where you are required to pay a large payment once the loan term ends. Here you will be making payments based on a 30-year term but for a shorter time like 7 years.
- Interest-only mortgages
The borrower will just pay the loan’s interest for a specific period of time. Once this period of time is over, your payment every month will increase as you start to pay your principal.
Here you can read about three main types of credit.
