Different Types of Mortgage Loans Available for Home Buyers
as a homeowner, when you approach the lender and begin filling out the mortgage loan application, it's a good idea to have a basic knowledge about all the available types of mortgages. this article talks about five important types of mortgage loans:
a conventional mortgage is a kind of home loan that the government does not insure. there are two types of conventional loans:
a conforming mortgage loan essentially means that the loan amount is under the federal housing finance agency's maximum cap.
non-conforming mortgage loans are those that do not obey these rules. the most popular type of non-conforming loan is jumbo loans, massive mortgages that surpass the fhfa limits for different counties.
for certain conventional loans, lenders mandate you to pay private mortgage insurance when you put down less than 20% of the home's purchase price.
it can be applied for a primary home, second home or property investment, and the average borrowing amounts tend to be lesser than the other kinds of mortgages, even if interest rates are a little higher.
conventional mortgages with non-conforming loan caps are known as jumbo mortgages. it suggests that the home's price is higher than the limits of a federal loan. jumbo loans are more common in high-cost areas and require more detailed documentation to apply.
for more affluent buyers interested in purchasing a high-end house, jumbo loans sound right. borrowers with jumbo loans should have excellent credit, a high salary, and a significant down payment. jumbo loans are available from several reputable lenders at affordable rates. bear in mind that whether you need a jumbo loan is solely determined by the amount of funding you need, not by the property's purchase price.
in this, you may take out a larger loan to purchase a home in a high-cost location. and the interest rates on these loans are generally comparable with those on other conventional loans.
fixed-rate mortgages have the same interest rate throughout the life of the loan, ensuring that your monthly mortgage payment remains consistent. fixed loans are usually 15 years, 20 years, or 30 years long.
a fixed-rate mortgage offers monthly payments stability if you plan to stay in your home for at least seven to ten years.
your monthly principal and interest payments remain the same throughout the loan's life, and other monthly expenses can be budgeted more precisely.
unlike fixed-rate loans, adjustable-rate mortgages (arms) have variable interest rates that can rise or fall depending on market conditions. many arms have a fixed interest rate for the first few years before switching to a variable rate for the rest of the term.
look for an arm that has a ceiling on how much your interest rate or monthly mortgage rate can rise, so you don't get into financial trouble when the loan resets.
in the first few years of homeownership, you'll benefit from a lower fixed cost. you'll be able to save a lot of money on interest rates this way.
while the u.s. government is not a mortgage lender, it does play a crucial role in helping more americans become homeowners. in particular, the government backs three prime mortgage lending agencies:
are you still confused about which mortgage loan suits you the best? you can calculate emi for different loans through our home loan calculator to know your monthly emis and choose the loan that suits you the best.