Mortgage types and what you need to know:
- Conventional Mortgage- This type of mortgage is the most common type of home loan. These loans usually have the best interest rates, and require good credit and at least 10% down payment, sometimes more. Conventional mortgages are normally 15 or 30 year loans or "interest only" when you pay nothing towards the principal amount in your payment.
"Interest only" loans may have a slightly lower monthly payment but you are not paying off the loan balance when you make your payments.
FHA Mortgages- These loans as sometimes referred to as first time buyers loans, but are actually available to anyone. Down payment requirements for these loans are lower, typically are 3.5%, and they can be more flexible with lower credit scores than a conventional mortgage.
Interest rates are not as low for FHA loans vs. a Conventional loan, but qualifying for the loan is easier. Take a look here to see the top 7 things you need to know about FHA Home Loans.
An FHA Mortgage are what most people consider a "first time buyers loan". Not all lender are able to offer them so if this is what you want to do make sure the lender you choose can make this type of loan.
VA Loans- These loans are available to veterans and carry some other stipulations in order to qualify. Not all lenders will be able to write these types of mortgages. You can find out more about VA loans here in our post "Zero Down, Does It really exist?"
USDA Rural Housing Loan- This type of mortgage is only available in certain areas and towns, but the definition of "rural" is more flexible than you think. These loans have special restrictions on what homes qualify and where they can be used but they may be a great option if the home qualifies. You can find out more details in our post "Zero Down, Does It really exist?"
ARM or Adjustable Rate Mortgage- These loan types may start out with a lower interest rate but will change after 1, 2 or 5 years and most lily upward! ARM's got may home owners into trouble when their interest rates shot up faster than they expected. It is always a good idea to talk to your lender about the benefits and risks involved with this type of loan.
203K Rehab Loans- These loans allow you to finance large expenses involved with fixing up a home that is need of help.These loans require some extra steps so make sure you talk to you agent and lender about the process before you decide to embark on this journey. You can find out more details about what to expect in our post "How does a 203k Loan Work?"
Mortgage Insurance- Okay, this isn't a mortgage type, but it is something that you need to know about! If you are putting less than 20% down on a home, you will be required to have PMI or Private Mortgage Insurance. This protects the lender in case you default on the loan and stop making payments. The cost will vary depending on the loan type so be sure to ask your lender about it so you know exactly what the costs are. When you get 20% equity in your home, contact your lender to find out how you can get rid of the PMI. this will save you money every month on your payments and allow you to pay more towards your loan!