There is a lot more to taking mortgage loans than simply finding a lender and applying for it. However, selecting among the various kinds of mortgage loans is not that hard when you are familiar with the lingo. Given below is a brief rundown of some of the most popular types of mortgages. For more information on taking mortgages, you can visit this site. But for now, let’s get to know more about seven common mortgage types that you can consider.
Four common types of mortgages on properties
Conventional mortgages are the kind of home loan that the government does not insure. Two types of conventional loans are available – non-conforming and conforming loans.
These loans simply mean that the loan amount remains within the Federal Housing Finance Agency’s maximum limits. Non-conforming loans are the kind of mortgage loans that do not meet such guidelines. Jumbo loans represent the larger mortgages over the FHFA limits for various countries and are the most common non-conforming loan.
Usually, lenders need you to pay PMI (private mortgage insurance) on several conventional loans while you place less than twenty percent of the home’s purchase price.
- It is helpful for a second home, primary home, and investment properties
- Borrowing costs are usually lower than other kinds of mortgages, even when interest rates remain a bit high
- You can make your lender cancel PMI after you reach twenty percent equity or refinance for removing it.
- It gives you the opportunity to pay as little as three percent down in some cases
- Sellers can contribute to the closing costs
Should you get a conventional loan?
Conventional loans are perfect for borrowers who have a stable income, long employment history, strong credit, and a down payment of a minimum of three percent.
Jumbo mortgages are a type of conventional mortgages that come with non-conforming loan limits. It means that the home price is more than the federal loan limits. These loans are pretty standard in the areas with higher costs and usually need more detailed documentation for qualifying.
- The ability to borrow more to purchase homes in expensive areas
- The interest rate tends to be more competitive with other such conventional loans
Should you get a jumbo loan?
Jumbo loans are helpful for affluent buyers buying high-end homes. The borrowers need to have a good income, excellent credit, and a considerable down payment. Also, many reputable lenders provide jumbo loans at highly competitive rates. Remember that whether you require jumbo loans or not gets entirely determined by the amount of financing you want, not by the property’s buying price.
Fixed-rate mortgages make sure that the interest rate stays the same throughout the loan. It means that the mortgage payment stays exactly the same for every month. Typically, fixed loans are available in fifteen, twenty, or thirty years.
- Monthly interest payments and principal remain the same all through the life of the mortgage
- It helps you in precisely budget all the other expenses every month
Should you get a fixed-rate mortgage?
When you plan to remain at home for a minimum of seven to ten years, fixed-rate mortgages provide stability in terms of monthly payments.
As opposed to the stability of the fixed-rate loans, the adjustable-rate mortgages come with changing interest rates that tend to go down or up with the market conditions. In addition, many products with adjustable-rate mortgages come with fixed interest rates for a couple of years right before the loan gets variable interest rates for the rest of the term. Therefore, you need to search for adjustable-rate mortgages that can cap the amount to which the monthly mortgage rates or interest rates can rise, so you do not land in financial troubles when your loan resets.
- Low fixed interest rates in the initial years of homeownership
- You can save a considerable sum of money on the interest payments
Should you get an adjustable-rate mortgage?
You need to be comfortable with a particular risk level before you get an adjustable-rate mortgage. However, if you only plan to remain in the house for a couple of years, an adjustable-rate mortgage can help you save on monthly interest payments.
Other three popular types of home loans
Along with the common types of mortgages, you will find several other kinds when searching for the right loan, such as:
Construction loans are a good option when the plan is to build a home. You can decide if you want to get separate construction loans for the project and then another mortgage to pay everything off. You need a high down payment for construction loans and proof that you can afford it.
The borrower has to pay only the allotted interest on the loan amount for a specific time. When that time gets over after about six years, the monthly payment rises as you start paying the principal. Since you begin by paying interest initially, you will not get to build equity as fast as you think.
Balloon mortgages need a larger payment when the loan term ends. Typically, you will have to make payments on a thirty-year term. However, it is only for a shorter period, like seven years. When that time ends, you will have to make a larger payment on the life balance, which is not easily manageable if you aren’t prepared. There are mortgage calculators that will help you understand if this type of loan is right for you.
The Bottom Line
And there you go! Now, you know about the seven options that you can choose from when selecting mortgages. Take your pick and go for the one that suits your needs the best. Check out a mortgage calculator and talk to your financial advisor before making any decision in this matter.