10 Types Of Mortgage Loans For Homebuyers

There are many types of mortgage loans you can get when you’re buying a home. If you don’t know what they are, then this is the guide for you. I’ll tell you about 10 different types of mortgage loans and how they work so that you can make sure your loan is right for your situation.

FHA Loan

FHA loans are guaranteed by the Federal Housing Administration. These loans are for low- to moderate-income borrowers and require a minimum down payment of 3.5%.

FHA loans allow borrowers to purchase or refinance homes with as little as 3.5% down. The program also allows the borrower to finance up to 97% of the value of their home, which is higher than any other conventional mortgage loan program available today.

The FHA offers many benefits over other lending programs:

• Low/no down payment required
• Conventional credit scores typically accepted (620+)
• Smaller monthly payments than other types of mortgages

Conventional Loan

You’ve probably heard the term “conventional loan” before. This is the most common type of mortgage loan, and it’s also the largest segment of residential lending (about 73%, according to data from 2018). Conventional loans are not backed by any government agency, so they are available to all borrowers regardless of income or credit score. That said, conventional borrowers are required to make a higher down payment than those who use an FHA loan or VA/USDA mortgage.

USDA Loan

If you’re looking for a way to get a mortgage loan without having to put down 20% of the home’s purchase price, the USDA loan might be right for you. This government-backed mortgage is only available in rural areas and provides low-income homeowners with up to 100% financing. However, there are some eligibility requirements that must be met before a borrower can take out this type of mortgage.

Other than income restrictions and limits on what type of property can be purchased with this type of financing, there are no credit score requirements or fees associated with taking out an FHA-backed loan.

VA Loan

VA loans are an excellent option for veterans and active-duty military service members. The VA loan program provides eligible borrowers with considerable benefits and flexibility when financing a home.

When applying for a VA loan, you must meet certain eligibility requirements to qualify. If you’re interested in learning more about how the VA loan can provide you with a mortgage solution, it’s important to understand what makes this type of financing unique.

Jumbo Loan

Jumbo loans are mortgage loans with a loan size that exceeds the conforming loan limit. The jumbo loan market is made up of homebuyers who have incomes or financial situations that are too large to qualify for a conforming loan, but still want to purchase a home.

A jumbo loan has higher interest rates, closing costs, down payment requirements, and prepayment penalties compared to conforming loans due to their risk profile. To compensate for these factors and maintain profitability for lenders and investors in this niche of the market, borrowers will pay more in total costs over the life of the mortgage than they would with a conventional mortgage.

When comparing rates across lenders it’s important to consider how much each lender charges in total fees: origination fees (which include application fees), underwriting fees, and closing costs (including title insurance). Borrowers should also look at how long it takes each lender to process applications—the faster you get approved for financing means less time between submitting your application and closing on your home!

Balloon Mortgage

A balloon mortgage is a loan that has a fixed rate for a certain period of time and then switches to an adjustable rate. The term balloon refers to the fact that your payment may rise dramatically when the fixed rate expires.

A balloon mortgage is similar to a hybrid ARM, except that it doesn’t have any caps on its interest rates after each adjustment period (which means your payments can get very high). Because of this, it’s only recommended for those who have very low monthly payments but have the financial ability to make larger payments at the end of their commitment period.

Adjustable-Rate Mortgages (ARMs)

If you’re going to take out a mortgage loan, it’s best to avoid adjustable-rate mortgages. These loans are often referred to as ARMs because the interest rate can be adjusted up or down at the end of each period. Unlike a fixed-rate mortgage—where you know exactly how much your monthly payment will be and when it will increase—an ARM’s interest rate could change without warning. That means that if rates go up, so do your monthly payments; if they go down, then so do your monthly payments.

The good news is that most mortgages have caps on how much they can change during a year (or another time period), but this isn’t necessarily true for all ARMs. So unless you’re confident in predicting future market conditions and want to bet on an upward or downward trend in rates, steer clear of ARMs!

Fixed-Rate Mortgage (FRM)

A fixed-rate mortgage (FRM) is a loan that has an interest rate that does not change for the life of the loan. The interest rate is fixed for the life of the loan and so are your monthly payments.

The lender offers two types of FRMs: fixed-rate mortgages with a term of 15 years or 30 years, which are known as 15/30-year FRMs, respectively.

Reverse Mortgage

A reverse mortgage is a special kind of loan that allows homeowners over the age of 62 to convert equity in their homes into cash. It’s a popular choice among older homeowners because it doesn’t require them to make monthly payments or repay any money until they move out or pass away.

Although these loans aren’t right for everyone, they can be an excellent way for seniors to supplement their retirement income and help ensure that they’ll have enough money to stay afloat during their golden years.

One-Time Close Construction Loans

There are a few different types of construction loans, and one-time close construction loans are for home buyers who want to build a new home. This type of loan is used for the construction phase, not for buying land or purchasing a land contract.

One-time close construction loans allow you to have all your funds upfront before any work begins.

Types of mortgage loans you can get when you are buying a home.

When you are buying a home, there are many types of mortgage loans you can get.

FHA loan: FHA loans are insured by the Federal Housing Administration (FHA). The FHA is a United States government agency created during the Great Depression that insures mortgages made to borrowers with lower-than-average credit scores or who do not have enough cash for a down payment.

Conventional loan: Conventional mortgage loans are regulated by Fannie Mae and Freddie Mac, two government-sponsored entities that purchase mortgage loans from lenders and then sell the loans in the secondary market (to investors).

USDA loan: A USDA loan is a USDA Rural Development mortgage product available exclusively to residents living in eligible rural areas, who can buy homes with as little as a 3% down payment on their home purchase purchases. Interest rates for VA and USDA loans tend to be lower than those of conventional financing because they have higher risk profiles; however, these programs may also require more documentation than conventional ones.

VA loan: VA home mortgages are guaranteed by the U.S Department of Veterans Affairs (VA) which makes them popular among military personnel and their families who wish to own homes without having large sums of cash upfront

Conclusion

In conclusion, these are the 10 most common types of mortgage loans. There are many more types out there, but these are some of the most popular ones.