Types of government and conventional mortgage loans
If you want to fulfill your long time dream to possess a home, you can buy a house for yourself by taking a mortgage loan or home loan. Before you take a loan, you need to know the different types of loans offered by the lenders.
What a mortgage loan is
A loan offered by the lender to buy a real estate property is called a mortgage loan. You may take the loan against the property you want to buy and you have to pay back your lender the cost of the loan, along with interest and other costs towards loan origination fee, closing costs, insurance and tax amounts, etc. If you fail to make payments to the lender, your property can be taken away by the lender.
Types of home loans
On the basis of different situations, mortgage loans can be of many types:
* Government loans: Under this category there are basically three types of loans available:
1. FHA loan: The Federal Housing Authority, which is under the US Department of Housing and Urban Development (HUD), provides home loans through lenders, with lower down payment requirement, which is as low as 3% of the loan amount, so that more people can qualify for the loan. It also offers lower interest rate and charge towards closing costs is also lower than that of the conventional loans. It also has an added benefit of transferring the loan to the buyer of your house, if you sell your house before the end of loan term.
2. VA loan: The US Department of Veteran Affairs guarantees this loan. On the basis of the guaranty, the service persons and veterans can get a home loan without making a down payment or a very small down payment, with favorable loan terms and conditions. The eligibility criteria to get qualified for this loan are also easier than the conventional loans.
3. RHS loan: The US Rural and Housing Service offers guarantees to the rural residents, with attractive loan features like, no down payment and minimum fees towards closing costs.
* Conventional loans: The loans other than those mentioned above are the conventional loans. They can be conforming or non-conforming. If the loan has terms and conditions which follow the guidelines set by Freddie Mac and Fannie Mae, it is called conforming loan. The various types of conventional loans are:
1. Fixed rate mortgage: This is the most traditional type of loan. The loans are amortized and the loan term varies from 10 years to 50 years, though, the most popular loan terms are 15-years and 30-years. The interest rate remains fixed over the entire loan term.
2. Adjustable rate mortgage: In this type of loan, the interest rate fluctuates with the market index. It remains fixed for a certain period, say, 1 year to 5 years, after that it varies with the market index.
3. Bridge home mortgage: If you already have a home and want to take a loan to buy a second home, and you have put your first home for sale, you can take advantage of this type of loan. Your first home will be used as collateral for this bridge or swing loan.
4. Balloon mortgage: If you have a poor credit score, you can take advantage of this type of loan. You need to pay a small down payment and after making monthly payments for 3-7 years, you have to repay the outstanding loan amount in full.
You should make sure to understand the terms and conditions of each mortgage loan in details, so that you will be able to select the best loan, according to your affordability.