Friday June 28, 2019
Different Types of Mortgages Explained.
If you’re looking to buy a new home you’ve undoubtedly met with a mortgage loan officer to explore the various types of loans available to you. Here’s a list of the most common mortgage products with a simple definition of what they offer:
Conventional / Fixed Rate Mortgage –
The name explains it best – with this loan your monthly payments don’t change over the life of the loan. They are set at a ‘fixed rate’ so you know what your payment will be every month.
Adjustable Rate Mortgage (ARM) –
The idea behind this type of loan is that the interest rate changes, or adjusts, over the life of the loan. You will see descriptions like “5/1 ARM” which means the interest rate stays the same for the first five years of the loan and then adjusts periodically (monthly or yearly depending on the loan) over the balance of the term.
FHA Loans -
This loan is designed to assist low & moderate income borrowers. With an FHA loan you can purchase with a lower down payment and the credit score required to qualify is lower than that required by the conventional/fixed rate mortgage products. As with any mortgage product, you must meet certain qualifications to use that loan.
VA Loans –
VA loans are available to eligible veterans for the purchase of a home they will occupy (not available on investment homes) with no down payment. On top of getting 100% financing, a VA loan does not require mortgage insurance which equates to sizable savings on yearly mortgage insurance expenses.
USDA Loans –
The US Dept. of Agriculture offers mortgages to encourage homeownership in rural areas. These loans offer 100% financing (no down payment required) and have low mortgage insurance rates. Your home must be located in an eligible area and you must have a minimum credit score of 640 to qualify.
There are several other loan products available – Jumbo, Balloon, Interest-Only…the list goes on. We’ve shared some of the most popular loans with her in this blog post. The important thing is to be knowledgeable about what’s available and to work with a reputable mortgage loan officer who will guide you toward the safest, most prudent and appropriate loan for you.