What mortgage loan types are available for those who wish to fulfill the dream of owning a home? There are several loan types available and each has their advantages. The three major loan types are VA, FHA and conventional. A conventional mortgage loan is the most basic type and the easiest to understand.
When you receive conventional mortgage financing for a home purchase,you are borrowing a certain percentage of the home price and agreeing to pay back the loan usually through monthly payments for a specific amount of years.
An FHA loan is backed by the Federal Housing Authority and a VA loan is backed by the Veterans Administration. Both of these groups have the agenda of helping Americans realize their dream of owning a home. They cooperate with certain lenders and provide the lender with mortgage insurance if you should default on the home loan repayment.
These types of loans are easier to qualify for,have a lower down payment and lower interest rates. With FHA and VA mortgage loan types, the VA and FHA will set the requirements of the loan such as how much is needed for the down payment, how much interest will be charged and inspection of the property. For these reasons many lenders do not like to deal with FHA or VA mortgage loan types.
A lender will have more control with the conventional mortgage loan types. Another difference in mortgage loan types is whether a loan is a variable-rate or a fixed-rate. A fixed rate loan has a set interest rate for the entire life of the loan. A fixed rate loan is preferred by many especially during times of a “buyer’s market.” Interest rates and housing prices are lower right now, therefore it makes sense to purchase when the rate is lower and will be able to be kept for the life of the loan since interest rates are likely to rise again.
The other benefit is that you will always know the amount of your payment so that you can budget your finances accordingly. A fixed rate loan can be more difficult to qualify for sometimes, so many people opt for the adjustable rate mortgage loan type when buying a home.
An adjustable mortgage begins with an interest rate that may not stay the same throughout the life of the loan. The interest rate will be adjusted periodically to reflect market conditions. Depending on the shape of the economy and the prime interest rate an adjustable mortgage loan type interest rate will rise and fall.
Another type of financing is the unconventional mortgage loan types. These loans have a variety of types and are relatively new within the home lending industry. There are balloon mortgages,interest only mortgage loans as well as interest only mortgage loan types.
When you are looking at buying a home and are in need of financing, be sure to look at the various mortgage loan types to see which is the best for you.