Confused about mortgages or which kinds are available? Take a look.
Are you slightly confused about what a mortgage is and how it works? First of all, I hadn’t the slightest clue about mortgages in general before working in a real estate office. Also, in college my studies did not focus on finance and accounting. For those like me, here are some basics to help you along!
To start, a lender (bank) and a mortgage broker, if applicable, will take your qualifications into consideration to help determine which mortgage fits you. Considerations include personal credit and the down payment amount as well as income & military service status.
Types of Mortgages:
- Fixed-Rate Mortgage: interest rates do not change during the entire life of the loan, so the monthly mortgage payment never changes
- Adjustable-Rate Mortgage (ARM): interest rates vary, thus the monthly mortgage payment will change over the life of the loan
- Conventional Loan: a home loan not guaranteed or insured by the federal government
- Government-Insured Loan: a loan guaranteed and insured by the federal government
- FHA (Federal Housing Administration) Loan: this ‘insurance program’ is run by the Department of Housing and Urban Development (HUD); available to all borrowers and allows the option for a low down payment, but mortgage insurance is required; furthermore, if you don’t have stellar credit, this is a good option
- VA (U.S. Department of Veterans Affairs) Loan: a program offered to military service men and women and their families; furthermore, borrowers can receive 100% financing (no down payment required)
- USDA (United States Department of Agriculture) RHS (Rural Housing Service)/RD (Rural Development) Loan: a program made for “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing” (homebuyinginstitute.com)
- Conforming Loan: meets underwriting guidelines for things such as credit, income, the actual loan amount and assets requirements of Fannie Mae and Freddie Mac (corporations controlled by the government); this type of loan ‘conforms’ to size limitations and other criteria required by Fannie and Freddie; it’s purchased by Freddie and/ or Fannie and then sold to investors on Wall Street
- Jumbo Loan: exceeds loan limits established by Fannie and Freddie; higher risk for the lender to issue; in addition, requirements usually include outstanding credit and larger down payments; interest rates may be higher
- In-House Loan: usually issued by a local lender; not sold to Freddie and/ or Fannie, thus it isn’t sold to investors on Wall Street; the local lender keeps the loan ‘in-house’
Finally, another resource to look at is ‘A First-Time Home Buyer’s Guide: What You Need to Know,’ by Brian Robson of The Simple Dollar. Notably, this article highlights understanding different options when it comes to mortgages, insurance options as well as budgeting & making an offer on a home.