What Are the Different Types of Home Loans That Exist Today?
Are you trying to buy a new home? You need to know more about the different types of home loans available to you.
With the housing market bursting at the seams pretty much everywhere these days, the importance of fair home loans can’t be understated. Finding a loan that gets you the house you want without financially crippling you in the future should be priority number one.
In this post, we’re going to discuss the different types of home loans that exist today so you can get a better lay of the land. If you’re only just starting your search for a new home, then keep reading and learn what those first steps are.
The Conventional Mortgage
Conventional mortgages come in two forms, conforming and non-conforming. Neither type of conventional mortgage is backed by the government but can be used to buy your first home, second home, or rental properties. It should be noted that Fannie Mae (FNMA) has made the guidelines tougher for investment properties, so you should read more about rental income Fannie Mae before thinking about portfolio diversification.
Conforming loans, simply put, conform to the FHFA standards. These standards include rules pertaining to credit, debt, and limits to the size of loans. The limits are higher in costlier parts of the country, like Los Angeles or New York.
Non-conforming loans work outside of the FHFA standards, whether it’s for subpar credit or a larger, pricier home. These types of loans are
There are three government agencies – the Federal Housing Administration (FHA), the US Department of Agriculture (USDA), and the US Department of Veterans Affairs (VA) – that back mortgages. The FHA helps interested buyers, who either don’t have pristine credit or a large enough downpayment, so long as they satisfy a list of requirements.
USDA loans help lower-income buyers purchase homes in specific rural areas. VA loans provide flexible loan terms to veterans that don’t have the credit or funds to get a conventional mortgage.
A jumbo mortgage is a type of non-conforming home for buyers that are looking outside of the FHFA standards. They’re usually given to people buying large houses in expensive cities and for that reason, the qualifications are much stricter. Because they’re riskier, the buyer needs to provide more documentation, provide a 20% down payment, and have a FICO score above 700.
Fixed Vs. Adjustable-Rate
When looking at the terms of any mortgage, you’ll have to discern between fixed and adjustable mortgage rates. The difference is very simple to understand – fixed-rate mortgages have the same interest rate over the span of the mortgage, while adjustable-rate mortgages fluctuate with market conditions.
Some mortgage lenders will do an initial period of fixed-rate terms (5-10 years), then switch to an adjustable rate that changes every six months.
Deciding Between Types of Home Loans
Now that you know a bit more about the different types of home loans, you can make an educated decision on your future. Owning a home, whether you live in it or rent it out, is a huge financial responsibility. The way that you finance your home matters, so read and reread this article to figure out which loan works best for you.
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