Different Types Of Home Loan In The Us

Interested property buyers have different options to finance their home purchase. Though it might seem confusing at first, you just need to do your homework and you will find the perfect option for you based on your budget and how much downpayment you wish to pay. Here are the most common types of home loans available.

1. Conventional Mortgage

This kind of home loan can be divided into two types: conforming and non-conforming. They are, however, not insured by the federal government. In general, you will need to pay for private mortgage insurance when you pay less than 20% downpayment.

The first type means they follow the maximum limits set by Freddie Mac or Fannie Mae. The second type, of which jumbo loans are the most common, do not follow these guidelines.

Conventional loans are best for those with high credit scores and with a debt-to-income ratio between 45 and 50%.

2. Jumbo Mortgages

These fall under the category of conventional loans but they have non-conforming limits. In places where property prices are higher, buyers will need access to loans that exceed federal limits. Thus, they are common for more expensive areas and will require applicants to submit more detailed documentation in order to qualify.

Because of the higher amount of money to be loaned, these loans are designed for more affluent buyers who want to buy an expensive piece of property. While the rates can be competitive, you will need to prove you have enough salary and assets to be qualified.

3. Government-Insured Mortgages

Through some government agencies, home buyers can find competitive home loans especially for those who might have a hard time getting other kinds of mortgages. For example, FHA (Federal Housing Administration) loans are great for those who cannot pay a higher down payment or who have bad credit scores. On the other hand, VA (Department of Veteran Affairs) loans are low-interest but flexible mortgages for those in the military (including veterans).

4. Fixed-Rate Mortgages

These loans will have the same interest rate throughout the loan period so that the monthly payments remain the same. While the interest rates can be higher, you can more easily plan your monthly budget and expenses. If you plan to live in the house for at least 7 years, then this is the best solution for you.

5. Adjustable-Rate Mortgages (ARMs)

As opposed to fixed rate ones, ARMs interest rates may go up or down over the years, depending on the market conditions. Some might begin as fixed rate, they eventually reset to an ARM for the rest of the period.

These various types of loans offer home buyers exactly what they need but they should be clear from the beginning how much money they want to borrow, the downpayment they can pay, and other important information before they start approaching a lending institution.

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