Types of mortgage
When looking for a mortgage for the first time, you may be a bit overwhelmed by all of the different options that are available. There are many different types of mortgage products, and it is important to understand the differences between them so that you can end up with the right one for you. So, with that in mind, continue reading to discover more about the different types of mortgage products.
What are the different types of mortgage products?
It is important to realize that not all mortgages are created equal. Some mortgages require bigger down payments than others. Some mortgages have stricter guidelines than others.
Therefore, it is important to have a good understanding of the different options that are available to you.
So, let’s take a look at some of the different types of mortgage products available today:
There is only one place to begin, and this is with a conventional mortgage. This is a mortgage that the federal government in the United States does not back, but it does adhere to Fannie Mae and Freddie Mac guidelines in most cases. If you have stable employment and income history, the ability to put down a small down payment, and a good credit rating, you will typically qualify for a conventional loan.
However, if you want to avoid private mortgage insurance (PMI), you will typically need to make a down payment of 20 percent.
A conforming loan is bound by the maximum loan limits the federal government has set. These limits will differ depending on the geographic location. For example, certain parts of the country, like San Francisco and New York City, will typically have a higher maximum loan limit.
An interest-only mortgage gives you the ability to only pay the interest portion of your mortgage for a period of time, for example, for the first five or ten years. You do not need to do this, as it will mean your repayment time is slowed down, but the option is there. Once this period is over, you will start paying off the mortgage in a conventional way, i.e. paying both the interest rate and the mortgage payment per month.
Adjustable-Rate Mortgage (ARM)
There are many different types of adjustable-rate mortgages. The basic concept, though, is that the interest rate will change over time throughout the lifespan of the home loan. The changes to the rate will reflect economic changes at the time and the cost of borrowing money. For example, a common adjustable-rate mortgage is called the 5/1 loan. With this type of mortgage, the interest rate stays consistent for the first five years, but then for the remaining five years, it is subject to change.
VA home loans are backed by the Department of Veterans Affairs, and as you may guess, these mortgages have been designed for veterans and military service members. With VA mortgages, no mortgage insurance is needed, nor is a down payment required. However, you will need to pay an upfront VA funding fee.
An FHA mortgage is a home mortgage that the Federal Housing Administration insures. The government backs all FHA loans, which are designed to assist borrowers who have modest means of purchasing a property.
The final type of mortgage that we are going to take a look at is the USDA mortgage. This is a mortgage that is issued or backed by the U.S. Department of Agriculture. These home loans are best for income-qualified purchases in rural and some suburban areas who want a zero or low down payment. With this type of mortgage, property value caps and income limits do apply.
Final words on the type of mortgage products available today
As you can see, there are many different types of mortgages for those who want to purchase their dream home. We hope that the information and advice we have presented above will help you to understand what sort of mortgage is going to be right for you. However, don’t worry if you are unsure, as you can connect with MortgageQuote.com who can assist you with this.
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