Understanding The Most Common Types Of Mortgage Loans

Trying to understand the most common types of mortgage loans can be confusing. Read below for more information, or if interested get pre-qualified fast!

CONVENTIONAL MORTGAGE LOANS

real estate agent holding a home in handA conventional mortgage loan can be used for refinancing or the purchase of a primary, secondary, or investment property. They are not insured by the federal government so there is no mandatory mortgage insurance required (MI) by them, however, lenders will require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price. Conventional loans are ideal for borrowers with strong credit, a stable income and employment history, and a down payment of at least 3 percent (Maximum of 97% financing).

The two more common types being:

1) Fixed Rate Mortgage Loans

Fixed-rate mortgages keep the same interest rate over the life of your loan, so if you plan to stay in your home for at least seven to ten years, a fixed-rate mortgage offers stability with your monthly payments as your monthly principal and interest payments stay the same throughout the life of the loan and you can more precisely budget other expenses month to month. These loans typically come in terms of ten, fifteen, twenty, twenty-five and thirty years.

2) Adjustable Rate Mortgage Loans

You must be comfortable with a certain level of risk before getting an Adjustable Rate Mortgage or ARM. If you don’t plan to stay in your home beyond a few years, an ARM could save you big money on interest payments as you’ll enjoy a lower fixed rate in the first few years of homeownership. However, unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. Look for an ARM that caps how much your interest rate or monthly mortgage rate can increase so you don’t wind up in financial trouble when the loan resets.

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GOVERNMENT INSURED MORTGAGE LOANS

Government-insured mortgage loans help you finance a home when you don’t qualify for a conventional loan as the credit requirements are more relaxed, you don’t need a large down payment and they’re open to repeat and first-time buyers.

The two more common types being:

1) FHA Loans

These types of home loans help make homeownership possible for borrowers who don’t have a large down payment saved up or don’t have pristine credit. They offer a maximum of 96.5 percent financing with a 3.5 percent down payment and require two mortgage insurance premiums: one is paid up-front, and the other is paid annually for the life of the loan.

2) USDA Loans

USDA loans help moderate to low income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify, but USDA loans do not require any down payment for eligible borrowers with low incomes and will finance up to 101% of the purchase price.

CALL GLOBAL UNITY MORTGAGE TODAY AT (860)872-9479 AND GET PRE-QUALIFIED FAST!