At first glance, the several types of mortgage loans may look like a secretive alphabet soup.  We see it as our responsibility to help put the cookies where everybody can reach them…moreover we are here to help make sense of it all.

 

There are VA Loans, FHA loans, USDA Loans, ARMs and other hard-to-remember acronyms. But when you break down the most common loan types, it’s easier to understand which ones could serve your family’s needs. That’s a good thing, because whether you’re buying your first home or want to refinance your existing mortgage, you’ll be a informed, more confident borrower if you know all your options.

How do you match your individual needs with the right loan program? Anyone who wants to finance a home purchase or refinance should consult with a mortgage professional like me who understands the value of education.

But even before you visit with a lender, you can start the education process by reviewing the following most common loans. We have broken them down into three categories depending on the type of loan:

  • Conventional Loans:These are the most common type of loans you’ll encounter. As these are not insured or guaranteed by a government agency, they’re generally considered a higher risk for lenders, so credit and income requirements may be stricter. 
  • Government-insured loans:These loans are federally insured to protect the lender if you fail to repay the loan. The FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) are among the various government agencies that insure or guarantee these loans. 
  • Loan repayment options:There are different repayment options for your loan, including fixed-rate mortgages and adjustable-rate mortgages, or ARMs.

Basic loan types

Conventional loans

A conventional loan is any loan that’s not insured or guaranteed by a government agency. Conventional loans tend to feature lower fees than FHA or VA loans.

Most conventional loans require a down payment of at least 5 percent, but this isn’t a hard-and-fast rule. First time buyers are often only required to have a down payment of just 3%.  Additionally, we offer an array of Grant programs that can cover all or part of the down payment that is required.

It is optimal to have a 20 percent percent down payment.  Borrowers who make a down payment of less than 20 percent generally must pay private mortgage insurance (PMI) on conventional loans, but that insurance will fall off once your home equity reaches 22 percent.

Conventional loans are generally a good choice for borrowers with good to excellent credit, since they typically cost less than some government programs.

Conforming loans

As its name implies, a conforming loan is a conventional loan that “conforms” to a set of loan limits established by Federal Housing Finance Agency for mortgages acquired by Fannie Mae and Freddie Mac, which are “government-sponsored enterprises” that were placed under the federal government’s control after the housing crisis. Conforming loans for one-unit properties are limited to $453,100 in 2018 in most areas of the country, but that limit is higher in certain housing markets.

The guidelines borrowers must meet for a conforming loan include the borrower’s loan-to-value ratio, debt-to-income ratio, credit score and credit history, etc.

Interest rates for conforming loans depend on a variety of factors, including your credit and the size of your down payment.

Nonconforming loans

Nonconforming loans include all loans that don’t match the loan limits and other requirements of conforming loans.

Many non-conforming loans are JUMBO loans (see below), but we also offer some specialty or niche programs that fall into this category.

Jumbo loans

A jumbo loan is a loan for an amount that exceeds the conforming loan limits for the county where the property is located. Because it doesn’t “conform” to the loan limit, a jumbo loan is by definition nonconforming.
The down payment requirements differ depending on the scenario and qualifications.  You may need a higher credit score to be approved for a jumbo loan, due to the higher risk the lender is taking on. You also need to have adequate income to afford the larger payments on a greater loan amount.

Government-insured loans

FHA loans

FHA loans, which are federally insured by the Federal Housing Administration, require a down payment as low as 3.5 percent and tend to have looser guidelines.

These loans may be a good option for borrowers with less cash and a lower credit score.

“FHA loans require upfront mortgage insurance and annual mortgage insurance that you generally pay monthly over the course of the term” Iit’s wise to compare your options with a conventional loan to see which serves your needs better.

VA loans

A VA loan is any home loan made by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA).  VA loans are a benefit available to veterans and offer a great option because they don’t require a down payment as long as the sales price doesn’t exceed the appraised value or mortgage insurance.

Veterans and active members of the military should check their eligibility before applying for such a loan.

USDA loans

Government-insured U.S. Department of Agriculture (USDA) loans do not require a down payment and may have lower mortgage insurance premiums than other options. USDA loans require borrowers to meet certain household income limits for the area where they want to buy a home, says Banfield.

The house must also be located in an eligible rural area, but you might be surprised about what qualifies as “rural.”  Areas that are in the outer suburbs may qualify for this program.

Loan repayment options

Fixed-rate loans

A fixed-rate loan locks in your interest rate for the entire loan term, which typically are typically 10, 15, 20 or 30 years.

Most buyers choose a 30-year fixed-rate loan. Interest rates are typically lower on loans with shorter repayment periods, but the payments are higher because of the shorter repayment period.

Adjustable-rate mortgages (ARMs)

Adjustable-rate mortgages have an interest rate that may go up or down. Typically, the interest rate under an ARM will remain fixed for a period of  five, seven or 10 years and then adjust annually after that.

The rates are lower initially, so they appeal to people who know they will move or who believe they are on a career path that will make future payments affordable even if they rise.

ARMs are often popular for refinances for borrowers planning to sell their home or fully pay off their loan in the near future.

Bottom line

We are here to help you.  To figure out which loan is right for you, you may have to carefully consider your financial goals, your budget and your assets.

Consider contacting a us to discuss which loan could be the best fit for your individual needs.

At first glance, the several types of mortgage loans may look like a secretive alphabet soup.  We see it as our responsibility to help put the cookies where everybody can reach them…moreover we are here to help make sense of it all.

There are VA Loans, FHA loans, USDA Loans, ARMs and other hard-to-remember acronyms. But when you break down the most common loan types, it’s easier to understand which ones could serve your family’s needs. That’s a good thing, because whether you’re buying your first home or want to refinance your existing mortgage, you’ll be a informed, more confident borrower if you know all your options.

How do you match your individual needs with the right loan program? Anyone who wants to finance a home purchase or refinance should consult with a mortgage professional like me who understands the value of education.

But even before you visit with a lender, you can start the education process by reviewing the following most common loans. We have broken them down into three categories depending on the type of loan:

  • Conventional Loans:These are the most common type of loans you’ll encounter. As these are not insured or guaranteed by a government agency, they’re generally considered a higher risk for lenders, so credit and income requirements may be stricter.

 

  • Government-insured loans:These loans are federally insured to protect the lender if you fail to repay the loan. The FHA (Federal Housing Administration) and VA (Department of Veterans Affairs) are among the various government agencies that insure or guarantee these loans.

 

  • Loan repayment options:There are different repayment options for your loan, including fixed-rate mortgages and adjustable-rate mortgages, or ARMs.

Basic loan types

Conventional loans

A conventional loan is any loan that’s not insured or guaranteed by a government agency. Conventional loans tend to feature lower fees than FHA or VA loans.

Most conventional loans require a down payment of at least 5 percent, but this isn’t a hard-and-fast rule. First time buyers are often only required to have a down payment of just 3%.  Additionally, we offer an array of Grant programs that can cover all or part of the down payment that is required.

It is optimal to have a 20 percent percent down payment.  Borrowers who make a down payment of less than 20 percent generally must pay private mortgage insurance (PMI) on conventional loans, but that insurance will fall off once your home equity reaches 22 percent.

Conventional loans are generally a good choice for borrowers with good to excellent credit, since they typically cost less than some government programs.

Conforming loans

As its name implies, a conforming loan is a conventional loan that “conforms” to a set of loan limits established by Federal Housing Finance Agency for mortgages acquired by Fannie Mae and Freddie Mac, which are “government-sponsored enterprises” that were placed under the federal government’s control after the housing crisis. Conforming loans for one-unit properties are limited to $453,100 in 2018 in most areas of the country, but that limit is higher in certain housing markets.

The guidelines borrowers must meet for a conforming loan include the borrower’s loan-to-value ratio, debt-to-income ratio, credit score and credit history, etc.

Interest rates for conforming loans depend on a variety of factors, including your credit and the size of your down payment.

Nonconforming loans

Nonconforming loans include all loans that don’t match the loan limits and other requirements of conforming loans.

Many non-conforming loans are JUMBO loans (see below), but we also offer some specialty or niche programs that fall into this category.

Jumbo loans

A jumbo loan is a loan for an amount that exceeds the conforming loan limits for the county where the property is located. Because it doesn’t “conform” to the loan limit, a jumbo loan is by definition nonconforming.
The down payment requirements differ depending on the scenario and qualifications.  You may need a higher credit score to be approved for a jumbo loan, due to the higher risk the lender is taking on. You also need to have adequate income to afford the larger payments on a greater loan amount.

Government-insured loans

FHA loans

FHA loans, which are federally insured by the Federal Housing Administration, require a down payment as low as 3.5 percent and tend to have looser guidelines.

These loans may be a good option for borrowers with less cash and a lower credit score.

“FHA loans require upfront mortgage insurance and annual mortgage insurance that you generally pay monthly over the course of the term” Iit’s wise to compare your options with a conventional loan to see which serves your needs better.

VA loans

A VA loan is any home loan made by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA).  VA loans are a benefit available to veterans and offer a great option because they don’t require a down payment as long as the sales price doesn’t exceed the appraised value or mortgage insurance.

Veterans and active members of the military should check their eligibility before applying for such a loan.

USDA loans

Government-insured U.S. Department of Agriculture (USDA) loans do not require a down payment and may have lower mortgage insurance premiums than other options. USDA loans require borrowers to meet certain household income limits for the area where they want to buy a home, says Banfield.

The house must also be located in an eligible rural area, but you might be surprised about what qualifies as “rural.”  Areas that are in the outer suburbs may qualify for this program.

Loan repayment options

Fixed-rate loans

A fixed-rate loan locks in your interest rate for the entire loan term, which typically are typically 10, 15, 20 or 30 years.

Most buyers choose a 30-year fixed-rate loan. Interest rates are typically lower on loans with shorter repayment periods, but the payments are higher because of the shorter repayment period.

Adjustable-rate mortgages (ARMs)

Adjustable-rate mortgages have an interest rate that may go up or down. Typically, the interest rate under an ARM will remain fixed for a period of  five, seven or 10 years and then adjust annually after that.

The rates are lower initially, so they appeal to people who know they will move or who believe they are on a career path that will make future payments affordable even if they rise.

ARMs are often popular for refinances for borrowers planning to sell their home or fully pay off their loan in the near future.

Bottom line

We are here to help you.  To figure out which loan is right for you, you may have to carefully consider your financial goals, your budget and your assets.

Consider contacting a us to discuss which loan could be the best fit for your individual needs.