I deal with a lot of different types of mortgage loans as a Folsom mortgage lender. Many home buyers aren’t aware that there are 8 different types of mortgages that you can get, each with their own benefits. So, it’s important to know what is available to you when applying for your mortgage, to make sure you are getting the best mortgage package for you. Let’s take a look at the 8 most common loan types.
Common Traditional Mortgage Loans
Fixed-rate mortgages are a conventional loan that most people go for because of its consistency and safety. With a fixed-rate mortgage, your interest rate remains the same for the life of the mortgage. This means you won’t have monthly payments that change as a result of interest rates rising. However, if interest rates drop, you will be stuck paying the higher rate that yours is fixed at. A fixed-rate mortgage is a good option if you need to keep a tight reign on your monthly budget. The most common term times for mortgage loans are 10, 15, 20, 30,
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage is one whose interest rates change to match the current economy. They are referred to as 5/1 mortgage loans because your interest rate will be fixed for the first 5-years of your mortgage and then changes from that time onward. Many consider an ARM to be a birt riskier because your monthly payments aren’t the same each month and your rates could shoot up quite a bit. However, this can be a good option if you plan on moving before the 5-year period is up because you can lock in a low rate. It’s not a good choice if you need to budget wisely though.
With an interest-only mortgage, you have the option to make payments towards just the interest for the first 5 to 10 years, lowering your monthly payments that would otherwise require both the interest and principal being paid. While it isn’t mandatory that you make interest-only payments, it can be helpful if you are suddenly hit with an unexpected expense, allowing you to lower your monthly payments to tap into some extra cash. The downside with this type of loan is that it slows your repayment time down, making it take longer to pay off.
Special Assistance Mortgage Loans
There are special mortgage loans that people in certain groups can tap into if they qualify.
FHA Mortgage Loans
An FHA mortgage is a good choice if your credit isn’t great but not too bad, you can’t make a 20% down payment, or you have been employed for less than 3 years. The mortgage is guaranteed by the Federal Housing Administration. You need to have a credit score that ranges between 500 to 579 and make a 10% downpayment, or a score of 580 and over and make a 3.5% downpayment to qualify for an FHA mortgage loan. You also need to have been employed for at least 2 years. With an FHA mortgage, the FHA guarantees the loan should you default on payments. This also means that you will have to pay mortgage insurance, which is usually built into the mortgage.
VA Mortgage Loans
This is a mortgage loan that is guaranteed by the Department of Veteran Affairs to help armed forces veterans or their spouses with buying a home. There is no downpayment required for a VA Loan.
Untraditional Mortgage Loans
There are some less common mortgage loans that you may qualify for.
Piggyback or Combo Mortgage Loan
With this type of loan, you can avoid having to pay for mortgage insurance if you are making a downpayment that is less than 20%. You are basically taking out two loans, one that is 80% of the market value of the home you are buying, and the other makes up the 20% you are short on.
Balloon Mortgage Loan
With this type of mortgage loan, you only pay towards the interest for a set amount of time, and then pay the entire principal amount once that time frame is over. It’s referred to as a balloon payment due to the large amount being due for payment.
Jumbo Mortgage Loan
A jumbo mortgage is one that the Federal Government is unable to guarantee because it is too large. The limit on this type of loan is around $700,000 and you wouldn’t be able to get a low-interest rate on it.
If you are thinking about buying a home and need advice regarding what mortgage options are available to you, give our Folsom mortgage lender team a call today!