October 23, 2020
There are many mortgage types. The one that is best for you is dependent on your particular situation and needs. It’s important to understand what options are available and what makes each one unique. Here are some of the primary home loan types.
Conventional Home Loans
Conventional home loans are what most often come to mind when we think of mortgages. They are loans that either need no mortgage insurance or are be insured by a private company. Conventional loans can either be conforming or non-conforming. Conforming loans meet the guidelines set by Fannie Mae or Freddie Mac, the government-sponsored entities that back most mortgage loans. The most common type of non-conforming conventional home loan is a jumbo loan which is used when the loan amount is higher than the loan limit set by Fannie Mae and Freddie Mac. Jumbo loans allow a borrower to purchase a higher priced home.
Conventional loans can either have a fixed or adjustable rate. As the names suggest, fixed-rate loans have interest rates that stay the same for the whole life of your loan while adjustable rate mortgages may allow you to get a low introductory interest rate that may increase over time. Fixed-rate loans are generally best for buyers planning to stay in their homes long-term. An adjustable rate may be a good option if you’re looking to keep your loan for a shorter period.
The U.S. government is not a mortgage lender but does offer certain programs through various agencies in order to better serve borrowers in unique circumstances. These programs are available only though approved lenders such as First Home Mortgage.
Some of the most common government loans include FHA, VA, and USDA loans. The Federal Housing Administration insures FHA loans which are geared toward borrowers with limited savings and lower incomes. The Department of Veterans Affairs insures VA loans which allow service members and their spouses to purchase a home with little to no down payment. The U.S. Department of Agriculture insures USDA loans to home buyers with low to moderate income who are buying in certain designated rural areas.
Renovation loans are just that, loans to fund the cost of renovating your home. These loans are available to existing homeowners as well as to homebuyers who have found a home to purchase that needs fixing up. Common repairs and remodels covered by renovation loans include garages, driveways, roofs and gutters, room additions, plumbing and electrical, basement finishing, landscaping and fencing, doors, windows, and decks, patios, and porches.
Two of the most common renovation loans are FHA 203(k) and FNMA HomeStyle loans. The Federal Housing Administration offers FHA 203(k) loans which cover the purchase of a primary residence and the repairs in one mortgage. There are two types of FHA 203(k) loans: Standard and Streamline. Standard FHA 203(k) loans give borrowers the flexibility to finance major rehabilitations that cost a minimum of $5,000, while the Streamline FHA 203(k) provides financing for minor repairs and renovations up to $35,000. A FNMA HomeStyle loan allows the purchase and renovation of either a primary residence, second home, or investment property in a single mortgage up to the lending limit with a minimum down payment of 5%.
The best way to determine the mortgage type that’s best for you is by talking to a knowledgeable professional. Contact one of our experienced loan officers today to learn more about loan types and find the option that’s right for you!