Do you want to know the types of home mortgages there are? When buying a home, you’ll need to decide which type of mortgage is the best find. Your decision may come down to how much you need to borrow and how strong your finances are. If you don’t qualify for one type of mortgage, you may be able to find another one that’s a good match.
There are several types of mortgage loans that appeal to a wide range of borrowers with unique housing needs and financial situations. As a prospective home buyer, it’s just as important to know the types of mortgage as the neighborhoods you want live in.
Applying for a home mortgage can be complex, and deciding which type of mortgage best suits your needs early will help direct you to the type of home you can afford
In this article, you will get to know the types of home mortgages, how many mortgages you can have on your home, the best loan for buying a home, and a whole lot more.
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Types of home mortgage
There are a number of loans to choose from when you buy a home, so it’s important to fully understand the advantages and disadvantages of each type before you make a decision.
Depending on the type of mortgage you choose, you’ll have different requirements that influence your rate, loan terms, and your lender. Selecting the right mortgage for your situation can lower your down payment and decrease the overall interest payment over the life of the loan.
- Conventional loan – A conventional loan is simply a mortgage loan offered by a private lender, without the incentive of government backing. Many home shoppers believe that they need at least a 20% down payment to buy a home with a conventional loan. This isn’t true. It’s possible to get a conventional mortgage with as little as 3% down. People sometimes confuse the idea that 20% is the optimal down payment with the 20%- down-to-avoid-PMI requirement. Best for borrowers with a good credit score.
- Jumbo loan – A jumbo loan is a high-value loan that exceeds the GSEs’ conforming loan limits, which are typically lower than non-conforming loan rates. These are the most common type of non-conforming loans. Best for borrowers with excellent credit looking to buy an expensive home
- Government-insured loan – Best for borrowers who have lower credit scores and not much cash for a down payment.
- Fixed-rate mortgage – Home buyers with a solid financial profile who want a consistent and predictable monthly payment and plan to stay in their forever home should consider this type of loan. Best for borrowers who want the predictability of the same payments throughout the entire loan.
- Adjustable-rate mortgage – Buyers who purchase a home that they plan to move out of their starter home within a few years or who plan to pay off their loan early can save money by choosing an adjustable-rate mortgage (ARM). Borrowers need to meet the same credit and income standards as a fixed-rate conventional loan to qualify for an ARM. Best for borrowers who do not plan to stay in the home for a long time, and are comfortable with the risk of larger payments down the road
What type of loan is best for buying a home
Buyers who want to buy a home with a low credit score should consider an FHA loan. The most widely available government-backed loans are FHA loans. There’s a common misconception that FHA loans come directly from the government, but they don’t.
How many mortgages can I have on my home?
Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as a home equity loan. Most lenders don’t provide for a subsequent mortgage backed by the same property. There’s technically no limit to how many junior loans you can have on your home as long as you have the equity, debt-to-income ratio, and credit score to get approved for them.
Conventional, fixed-rate mortgages are the most popular home loan type because they offer the most competitive rates and fees and are easy to find.
For people who can’t qualify for a conventional mortgage, FHA loans, VA loans, and USDA loans can help lower-income buyers with fair or better credit to become homeowners. Additionally, VA loans and USDA loans have attractive terms and perks for those who qualify for them.
Regardless of which loan type you end up choosing, be sure to calculate how a mortgage payment can fit into your overall budget and consider whether buying a home is the right choice for you