The Different Types of Mortgages
Are you applying for your first mortgage? If so, the different types of mortgages can be confusing. Here’s your mortgage guide explaining all of the mortgage types.
Statistics show that the total number of mortgages combined was almost ten trillion dollars in the last quarter of 2017.
If you are thinking about getting a mortgage then there has never been a better time to get your dream home. Whether you are thinking about getting your loan from a bank or some other lending agency you should make yourself aware of the different types of loans that are available to you.
Here is a rundown of the types of mortgages you may be able to secure if you approach any of these lenders.
1. Choose A Fixed or Adjustable Rate
Any mortgage that you take will usually go into the fixed or adjustable rate category. The one you decide to take should be based on your personal needs.
Here is a breakdown of what they have to offer:
Fixed Rate
This mortgage loan has the same interest rate over the entire life of the mortgage. The amount you pay back will be the same every month and every year. This agreement will hold up for long and short-term loans.
Adjustable Rate Mortgage
The interest rates on these mortgages will change overtime. The rate may be fixed for a specified amount of years. When the agreed number of years have passed then the payment rate will be adjusted to whatever was outlined in the mortgage agreement.
2. The Four Most Important Types Of Mortgages
Your mortgage decisions don’t just end with choosing a fixed or adjustable rate mortgage. You also have the choice of whether you want your mortgage to be a government-issued loan or a conventional loan. You are able to combine government issued or conventional loans with a fixed interest rate or an adjustable rate in order to ensure that you get a mortgage that suits your needs and income.
Here is an outline of the different types of mortgage loans:
Conventional Loans
A conventional loan is not insured or guaranteed by the government and tends to have manageable interest rates. However, you will typically have to make a larger down payment on conventional loans. This can be anywhere from 3 to 25 percent depending on the total price of the home.
You will also have to prove that you have a stable income in order to qualify for a conventional loan. Some lenders may put limits on the percentage that your mortgage payment and other expenses should take from your annual salary. For example, when you add up your mortgage, car loan, credit cards and living expenses your lender may want them to be no more than 35 percent of your yearly income in order for you to qualify for the loan.
There is a silver lining to these restrictions because it helps you to ensure that you do not have loan payments that make it impossible to save money, live comfortably and stay out of debt. However, it can be restrictive if you are willing to make the sacrifices in order to get your own home but find that you can’t because of the limitations.
Federal Housing Administration Loans
The Federal Housing Administration mortgage is managed by the Department of Housing. These types of home loans are made available by the government to all buyers whether they are getting their first mortgage or not.
The government insures the loan, so that if you borrow and are unable to pay back, the lender is protected against losses. The advantage for you as a borrower is that the down payment on the loan is only 3.5%. The disadvantage is that you will have to pay mortgage insurance which will increase your monthly payments.
Veterans Affairs Loan
This is a loan that is offered to those in the military and their family members. These loans are guaranteed by the federal government. The biggest advantage of this program is that you get can get 100% financing on your home. This means that you won’t have to make any down payment.
United States Department Of Agriculture Loans
The United States Department of Agriculture offers a loan for borrowers who live in rural areas. The program is controlled by the Rural Housing Service which is a division of the Department of Agriculture.
If you live in a rural area and have low income which is steady then you may qualify for this loan even if you do not qualify for conventional financing.
All of the loans outlined above are available at the Metropolitan Mortgage Corporation, where you will get the guidance you need to make the right choice.
3. Understanding The Difference Between Jumbo and Conforming Loans
The size of your loan does matter. The amount of money you borrow will determine whether your loan is a considered Jumbo or Conforming.
A conforming loan meets the guidelines for size that have been put forward by one of the two government-controlled mortgage agencies. These two agencies are called Fannie Mae and Freddie Mac.
A Jumbo loan goes beyond the prescribed limits outlined by Fannie Mae and Freddie Mac and because of this, the lender will always take on greater risk when they give one to you. Due to these additional risks you will need to have excellent credit and will be subject to a larger down payment. You can expect to have higher interest rates on these loans as well.
Final Thoughts
Getting a new home especially if you are a first-time buyer is a milestone in your life. However, it is important that you are informed about the different types of mortgages available to you so that you can make the right choice for yourself and your family. There is also the option to learn how to pay off your mortgage early.
As you can see there are many options available but not all of them will be right for you. The good news is that if you are patient, you will eventually find a mortgage that suits your needs and budget. Learn our philosophy if you would like to learn more about how to make smart decisions with your money. We will provide you with a wealth of information on how to manage your finances.
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