Years ago, there were only three main types of mortgage loans that people seeking to buy a new home could avail themselves of.
First there was the fixed-rate conventional mortgage. Next came an FHA loan or a VA loan. But those simple “big 3” loans are no longer the only players on the block.
There are tons of new loan types in existence today that mortgage loan seekers can take out, so many to choose from that it has become a smorgasbord of choices.
Here are Several of the Popular Types of Mortgage Loan Programs Available
The fixed-rate mortgage loan is the main type that most folks seeking to buy a new home have become familiar with. Whether they run from 5 years to 10 years or 15 years long, the fixed-rate mortgage generally offers no surprises to buyers in terms of their monthly payment amounts.
These days, options for 20-year-, 30-year, 40-year and even 50-year fixed-rate mortgages also exist under this umbrella.
The government – that’s right, old Uncle Sam – is the one who insures these FHA mortgage loan types. Mortgage insurance that is funded into the loan is the basis for the monies provided for this popular loan type that is ideal for many first-time homebuyers.This is due to the fact that with FHA loans, the down payment requirements aren’t very large, and FICO scores don’t matter – so folks with bad credit might be good candidates.
VA loans are government loans set aside for veterans that have been members who served in the U.S. Armed Services. In certain instances, the spouses of the deceased veterans become eligible for VA loans, too.
It varies based on how the veteran was discharged – honorably or dishonorably – and includes other factors, such as the year of service. The big benefit to receiving a VA loan is that the person who borrows the money doesn’t need to come up with a down payment, because although the Department of Veteran Affairs guarantees the loan, conventional lenders fund the loan.
Even though it’s called an “interest-only mortgage,” the loan really isn’t merely made up of interest alone. It doesn’t mean the borrower gets away with only making payments on the interest of the loan itself.
What it does mean is that the borrower has the option to make an interest-only payment, and that choice is only in existence for a certain period of time. There are some junior mortgages that truly have interest only in the beginning – but watch out, because they tend to require a big balloon payment at the end that consists of the original loan balance at maturity.
Mortgage Loan Hybrid Types
This is a complex type of adjustable-rate mortgage, meaning that the interest rate fluctuates from time to time. Borrowers can choose from varying rates and payment options, but beware of negative amortization.
These loan types of mortgage financing are comprised of two different loans: There’s a first and a second mortgage.
These can be ARM mortgages or fixed-rate mortgages or an amalgamation of both types. People who go for these types of combo mortgage loans are taking out two loans when the down payment is less than 20%, in order to avoid paying private mortgage insurance.
Adjustable-rate mortgages (ARMs) come in an array of types, and the most dangerous part about them is the fact that their interest rates can fluctuate wildly on a periodic basis.
Home shoppers who like paying reduced interests rates are the ones who usually opt to choose mortgage buydowns, an option whereby the interest rate is lowered due to the fees paid to lower the rate.
That’s why this choice is called a buydown, because buyers, sellers or lenders are “buying down” the interest rate for the borrower.
Specialty Mortgage Loan Types
Streamlined-K Mortgage Loans
The FHA has a program that gives funds to borrowers to repair a home and allows them to roll the monies into one loan. The Streamlined-K loan’s dollar limits for this repair work is lower, but it’s attractive because it constitutes less paperwork and is easier to receive than a 203K type of loan.
Bridge and swing loans are used when a homeowner’s house for sale has not yet sold on the market and the seller needs to borrow equity in order to buy another home. The existing home for sale is used as equity for the loan.
Equity loans are used when borrowers receive cash based on the equity built up in their existing home. It can be an ARM loan or a fixed-rate loan or even a line of credit that the borrower can take cash from as needed.
Reverse mortgages are in existence for people 62 years of age and older who have built up enough equity in their residence. In this instance, the lender makes monthly payments to the borrower – as opposed to the borrower making monthly payments to the lender.
It lasts for the time period that the borrower resides in the home. Get further advice from a professional before seeking a reverse mortgage loan.
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