Common Types Of Mortgages: A Complete Guide
December 06, 2021It can be intimidating to buy a new home, especially if it is your first time. There is a lot of information to learn, plus, it's a huge investment that you don't want to mess up. Thankfully Key Title & Escrow is here to help; our experienced title and escrow specialists come with over 20 years of expertise in everything you need to successfully buy and close on a home, including helping you decide on a mortgage.
Did you know there are several different types of mortgages? You'll want to start to review the types of mortgage loans if you're considering buying a home. Your mortgage selection is going to determine your finances for a long time to come! Our title and escrow company outlines the details of a mortgage and the four most common types. Contact us today to request a consultation, get a quote, or learn more about all of our title services.
What Is A Mortgage?Before diving into the different types, it's key to understand what exactly a mortgage is. Simply, a mortgage is any type of loan that is used to purchase or refinance a house! A mortgage is specifically used for a property, and this is why you will hear mortgages referred to as a mortgage loan or even just a loan. If you can pay outright for the house, then you can avoid a mortgage. But, most people use a mortgage to buy a home.
Four Types Of MortgagesWhen choosing a mortgage loan, the more knowledge you have, the better. The following are four common types of mortgage loans. Get in touch with us today to learn more and decide which one is right for you.
ConventionalConventional mortgage loans are what homeowners think of when picturing a mortgage. It's typically reserved for homeowners with good credit scores, a low debt-to-income ratio, and a stable income. This type of mortgage loan is not backed by the government and is divided into conforming and nonconforming loans. A conforming loan A conforming loan means that a certain amount of money is under the maximum limit set by the FHFA (Federal Housing Finance Agency), while a nonconforming loan is above the FHFA limits.
Government-BackedThe U.S. government backs certain mortgages that give homeowners ineligible for conventional loans more options. Government-backed mortgages require lower down payments and have lower minimum credit score requirements. On the flip side, there are more regulations and eligibility criteria for each type of mortgage; these types include FHA loans, VA loans, and USDA loans. FHA loans in particular are perfect for first-time homebuyers.
Fixed-RateA fixed-rate mortgage loan results in a predictable, monthly payment. Fixed-rate mortgages tend to be an agreement over 15, 20, or 30 years. For this reason, you should plan to be in your house for at least 7 to 10 years when selecting a fixed-rate loan. Look closely at interest rates for your fixed-rate mortgage when purchasing a home. For a fixed-rate mortgage, you are likely to pay higher interest.
Adjustable-RateAdjustable-rate mortgages (ARMs) are a little more uncertain. ARMs are at the mercy of market conditions and are shaky compared to fixed-rate mortgages. Some ARMs will start off with a low, fixed-interest rate. This allows for early savings. If you don't think you will live in your new home for a long time, this could be the best type of mortgage loan for you!
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