Basic Loan Types
These are the most common types of loans. They are generally considered a higher risk for lenders as they are not guaranteed or insured by a government agency. Due to this credit and income rquirements may be more strict.
1.- Conventional Loans
Conventional loans are generally good for borrowers with good to excellent credit. They typically cost less than some government programs and tend to feature lower interest rates than government-insured loans such as FHA loans or VA loans. You'll ideally want to plan for at least a 20% down payment. Most conventional loans require a down payment of at least 5%, but if you make a downpayment of less than 20% you generally must pay private mortgage insurance (PMI) on conventional loans.
2.- Conforming Loans
A conforming loan is a conventional loan that conforms to a set of loan limits established by Federal Housing Finance Agency for mortgages acquired by Fannie Mae and Freddie Mac. Interest rates for conforming loans depend on factors such the size of down payment and your credit. Guidelines borrowers must meet include the borrower's loan-to-value-ratio, debt-to-income ratio, credit score, credit history, etc.
3.- Non-Conforming loans
Non-conforming loans include all loans that don't match the loan limit and requirements of conforming loans.
Goverment Insured Loans
These are mortage loans that are federally insured to protect the lender if you fail to repay the loan. Goverment agencies such as the FHA (Federal Housing Administration) and the VA (Department of Veterans Affairs) are among the various agencies that insure or guarantee these loans.
1.- FHA Loans
FHA loans are federally insured by the Federal Housing Administration. These loans are a good option for borrowers with less cash and a lower credit score. Down payments are as low as 3.5% and tend to have less strict guidelines. FHA loans require upfront mortgage insurance and annual mortgage insurance typically paid monthly over the course of the term.
2.- VA Loans
VA loans are any home loan made by a private lender and guaranteed by the U.S Department of Veterans Affairs. These loans don't require a down payment as long as the sales price doesn't exceed the apprasied value, or mortage insurance. Veterans and active members of the military shoud check their eligibility before applying.
3.- USDA Loans
USDA loans have certain requirements such as the house must be located in an eligible rural area and borrowers must meet certain household income limits for the area in which they want to buy a home. USDA loans do not require a down payment and may have lower mortgage insurance premiums.
Loan Repayment Options
You have different repayment options for your loan such as Fixed Rate Mortgages and Adjustable Rate Mortgages (ARMs)
1.- Fixed Rate Mortgages
A fixed rate loan locks in your interest rate for the entire loan term. Loan terms typically range from 10 to 30 years. Interest rates are typically lower on shorter term loans, but the payments are higher because of the shorter repayment period. Fixed Rate Mortgages are typically popular with first time home buyers due to the long term predictability.
2.- Adjustable Rate Mortgages
Adustable Rate Mortgages (ARMs) are typically popular for refinancing, particulary for borrowers planning to sell their home or fully pay off the loan in the near future as the interest rates are lower initially. ARMs have an interest rate that may go up or down . The interest rate typically will stay the same for 5, 7, or 10 years then adjust annually after that.