Mortgages or home loans come in a variety of forms. Buying a home is quite exciting but choosing the right mortgage is difficult. Once you know the basics and have nailed down the budget, then choosing the right mortgage will not be that painful.
If you are planning to purchase a new home, you must be aware of the different types of loans and mortgages available. Mortgages or home loans come in a variety of forms. Buying a home is quite exciting but choosing the right mortgage is difficult. Once you know the basics and have nailed down the budget, then choosing the right mortgage will not be that painful. This article offers basic information about the different types of mortgages available.
Conventional loans: Conventional loan is the most popular type of loan having the best rates. Conventional mortgages are not insured by the federal government. People need a good credit score around 620-640 and down payment between 5% and 20% for a conventional loan. One of the major benefits of taking conventional loans is that if at least 20% of down payment is put down, mortgage insurance is not required. Two types of conventional loans are there namely Conforming and Non-Conforming loans.
FHA Mortgage: FHA loans are government insured loans which are managed by the HUD, the Department of Housing and Urban Development. Borrowers having a minimum credit score can apply for FHA loans. FHA loans also require homeowners to pay down payment as little as 3.5%. But the borrower needs to pay mortgage insurance premiums which are around 0.85% of the annual quantity of the loan.
VA Loans: VA loans provide low flexible interest loans for American veterans and their families. VA loans are not insured by the federal government. VA loans are flexible and can be a fixed rate mortgage or an adjustable rate mortgage. These types of mortgages do not require mortgage insurance premiums or down payments. VA loans charge a funding fee as a percentage of the loan amount.
USDA Loans: This loan program is offered by the United States Department of Agriculture. USDA mortgages help low income to moderate income borrowers to buy their own home in rural areas. Some USDA loans do not need down payment for eligible low income borrowers.
Fixed Rate Mortgages: These types of mortgages allow borrowers to pay off the mortgage over a fixed rate of interest regardless of the changes in the interest rates. In fixed rate mortgages, the interest rate remains constant over the life of the loan and the monthly mortgage payment always stays the same.
Adjustable Rate Mortgages: Adjustable rate mortgages more popularly known as floating rate home loans are linked to the lender’s benchmark rate and it changes with the market interest rate. The interest rates go up and down with market conditions.