What Are the Common Types of Mortgage Loans?

Are you buying a home, but you don’t know much about mortgage loans? Are you considering borrowing money against your home for a renovation or addition?

Last year, Americans built more than 900 thousand new homes in the US. That’s a slight decrease from previous years, but it’s still a lot of homes.

If you want to get a mortgage, it’s good to understand how they work. Here’s a guide to the different types of mortgage loans available today.

What Is a Mortgage?

You might be asking how does a mortgage work. A mortgage is a loan to purchase a property. Your home is the security for a home mortgage, and the lender can take possession of your property if you don’t make your payments.

Mortgage payments depend on the term or length of the mortgage, the amount borrowed, and the interest rate charged. Mortgage rates depend on several things, including your credit history, the lender, and your income.

You may need private insurance on your mortgage if your downpayment is below a certain amount.

Different Types of Mortgage Loans

There are several different types of mortgage loans. Here’s a list of the main ones.

  • Conventional and unconventional mortgage loans
  • Jumbo mortgage loans
  • Fixed vs. adjustable-rate mortgages

There are also government-backed loans available for specific situations.

Conventional vs. Non-conventional Mortgage Loans

If you have a strong credit history and stable employment history, the best mortgage loan for you might be a conventional mortgage. You’ll need to have a down payment, and you can’t have a lot of other debt. They have some of the lowest interest rates available.

Conventional loans may be conforming loans if they meet specific limits. A non-conventional mortgage is when the borrower doesn’t meet the requirements of a conventional mortgage.

Jumbo Mortgage Loans

When you have a mortgage loan that is larger than the conforming loan limits, it’s a jumbo mortgage loan. For home purchases in higher-cost areas, you’ll need a jumbo loan. These loans require more documentation to process.

Fixed-Rate vs. Adjustable Rate Mortgages

A fixed-rate mortgage has the same percentage interest rate and payment amount for the entire mortgage term. It’s great if you like predictability and want to lock in at the current rate.

An adjustable-rate mortgage has a rate that fluctuates with market rates. These are great if you expect rates to drop over time. You will usually lock-in for the first five or ten years with these cash loans in Auckland. Then the lender will adjust the rate based on the market.

Government-Backed Loans

If you served in the US military, you might be eligible for a VA or Veterans Association loan. 

The Federal Housing Administration insures FHA loans. They are for people with a low credit score as long as they can provide a larger down payment.

The Department of Agriculture insures USDA loans. These loans are for housing in rural areas when purchasers don’t have a down payment.

Choose the Best Mortgage for Your Needs

When you spend some time researching the types of mortgage loans, you will know what you can obtain. When you have the information you need, you can choose the best option for your needs.

Did you find this article helpful?  Use our search feature to get the latest news articles about getting a mortgage. Check out the Real Estate section for other great information.

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