Mortgage Types: Get The Best That Suits Your Needs And Budget

In one of our blogs, we have discussed the basics of Mortgage and Loans. To continue educating our readers about this process we are going to add the types of mortgage that consumers can choose from.

In buying a home, choosing the property is only half of the task, the second half is selecting the type of mortgage. According to Fairway Mortgage Fort Collins, since you will be tied up to this mortgage for a long time, you should choose a loan that can meet your needs and you can afford to pay.

Remember, when you borrow from a lender, you are making a legal commitment to pay this amount for a specific period with interest. So, you should be comfortable paying for it.

What is a Mortgage?

The financial experts at Fairway Mortgage Fort Collins define mortgage as the type of loan that you can use to purchase or refinance a home. Mortgages are also called mortgage loans and it is a way of buying a home without having to give the cash up front.

Mortgage payment has two important components: the principal and interest. The principal is the total loan amount while the interest is the additional amount that the lender charges the borrower for the money spread over some time. During the mortgage term, the monthly installment is set by the lender.

Another factor that affects the mortgage price is the annual percentage rate or APR. It assesses the total cost of the loan including the interest and other fees.

6 Major Types of Loans

In the US, like in any place in the world, not all mortgage products are the same. Some have stricter rules than others. Others would collect a 20% down payment while some financial institutions would only need as little as 3%.

Here are the choices for mortgage loans in the US.

Conventional Mortgages

This type of loan is not backed by the government. The borrower needs to have a good credit score, stable income, and employment history and can make a 3% down payment to qualify for the loan.

There are many financial institutions in the US offering this type of mortgage loan. One more thing, borrowers need to have private mortgage insurance. Some lenders do not require this if the down payment is at least 20%.

Conforming Mortgage Loans

The conforming mortgage loan has to follow a maximum limit set by the federal government. It varies from one state to another based on the recommendations by the Federal Housing Finance Agency. For example, New York or San Francisco has a higher maximum limit than any other city because they are high-cost areas.

Non-Conforming Mortgage Loans

As opposed to conforming loans, these types of loans typically exceed the loan limits. They are riskier to the lender. Thus, the borrower needs to show large cash reserves, must have strong credit, and can make a down payment of 10% to 20%.

Government-Insured Federal Housing Administration Loans

People who are in the low-to-moderate income buying a house for the first time typically avail loans insured by the Federal Housing Administration when they don’t qualify for conventional loans.

These loans have more relaxed requirements. One thing you need to understand about it is the money will not come from the government. Instead, it is being coursed through FHA-approved lenders.

Government-Insured Veterans Affairs (VA) Loans

In this type, the loan is guaranteed by the US Department of Veterans Affairs and is only available for qualified military service members, veterans, and their spouses. It does not require a down payment and has fewer closing costs, better interest rates, and no requirement for MIP or PMI.

Fixed-Rate Mortgages

Fixed-rate loans are what it is. There is a set interest for the duration of the loan, which usually ranges between 10 to 30 years. It is advisable for those who can afford a higher monthly payment as it can help you save on interest payments.

Adjustable-Rate Mortgages (ARMs)

The last type of loan is adjustable-rate mortgages. It has a fixed rate for the initial period of 10 years and then after this, the rate will fluctuate with the current market situation. This type of loan can be risky, as the monthly payment can be higher once it resets.

Conclusion

No matter which type of loan you select, your credit report will determine where you stand. Fairway Mortgage Fort Collins recommends getting a free credit report to spot and fix the errors, work on paying down the debt, and improve your history of payments. It will put you in a better position when you approach a mortgage lender.