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
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
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.