Not all loans are created equal. Certain ones will be a better fit for you depending on your situation and needs. If you’re thinking of buying a new home or refinancing an existing one it’s important you understand what options are available so you can make an informed decision.
Read further to learn about the different types of mortgage loans.
Mortgages are generally broken down into two types: Fixed Rate and Adjustable.
Fixed rate mortgages have a set interest rate which result in a fixed payment amount that will not change over the life of the loan. It’s particularly popular with first-time home buyers, and anyone who want the peace of mind that mortgage payments will remain predictable. Fixed rate mortgages are available at 30, 20, 15 and 10 years, with the most popular being the 30 year option.
Adjustable rate mortgages (ARM) are conventional or government home loans that start at a fixed rate for a set period of time. After the period expires, the rate may go up or down once per year.
Once you’ve determined which mortgage type is best for you, it’s time to explore the additional options available. Loans are further classified as conventional, government, or specialty.
Conventional (conforming) loans are non-government loans guaranteed by Fannie Mae and Freddie Mac. Conforming loans offers home buyers the largest selection of loan products at competitive rates. However, they must meet specific financial requirements, and the loan amount may not exceed a certain amount, which is set at a county-by-county level.
- FHA Loan: Federal Housing Administration (FHA) loans are a type of government loan that typically allows for a lower down payment and credit score. FHA loans offer down payment options as low as 3.5%. They can be fixed rate or adjustable rate, but also require upfront and annual mortgage insurance premiums.
- VA Loan: Veterans Administration (VA) offers loans for eligible U.S. veterans, reservists, active-duty military personnel, National Guard and surviving spouses of veterans. VA loans make it easier for veterans to get financing because there is no minimum credit score and no down payment required.
- USDA Loan: The United States Department of Agriculture (USDA) provides special financing opportunities to borrowers who live in rural areas as defined by the USDA.
- Jumbo Loan: If a homebuyer wants to borrow more money than a conventional or government loan allows, then they will want a Jumbo loan. These loans are conventional, non-government loans that exceed limits established by Fannie Mae and Freddie Mac. Jumbo loans are great for purchasing high-priced or luxury homes.
- Renovation Loan: A home improvement loan or Renovation mortgage combines the purchase contract of a home with a renovation budget. This allows you to have a single mortgage payment that takes into account the cost of the home along with the improvements needed to turn an as-is home into your dream home.
- Reverse Mortgage: These loans are available to individuals over 62 years of age or older with considerable equity in their home. A homebuyer can borrow against the value of their home and receive these funds as a lump sum, fixed monthly payments, or a line of credit. While reverse mortgages require no monthly mortgage payments, borrowers are still responsible for property taxes and homeowner’s insurance.
At the end of the day you need to consider your personal situation and objectives, both near-term and long-term to help you determine which loan is right for you. Contact Service First today, and one of our highly trained Loan Officers can help you find the best loan to meet your needs.