If you're a first time home buyer, the sheer number of mortgage loan options can be overwhelming. Before you panic, here is a quick list of 9 of the different types of loans that you may be interested in. This will give you a chance, along with your loan officer, to figure out which one best fits your circumstances.
1. The Conventional Loan
Conventional loans are popular for those with good credit and a decent down payment. These loans are not guaranteed or insured by the federal government and they tend to have higher standards than government-backed loans (higher credit score & more money down). You can get a conforming or non-conforming loan; non-conforming loans are usually for higher amounts and are also called “jumbo” loans.
2. VA Loan for Veterans
VA loans are backed by the Department of Veterans Affairs. They tend to be more flexible and offer more benefits to buyers (no minimum credit score and no money down). These loans are only available to US veterans, active service members, or surviving spouses.
3. The Popular FHA Loan
FHA loans are backed by the Federal Housing Administration and also offer more flexibility for buyers than conventional loans (580 minimum credit score with 3% down; 500 minimum credit score with 10% down). This is an excellent option for many first time buyers.
4. USDA Loan
USDA loans are backed by the United States Department of Agriculture and are only available in specific rural areas. Similar to VA and FHA loans, they are available to a large number of buyers (no minimum credit score, 0% down). However, the home you plan to purchase must be eligible for a USDA loan based upon mapping guidelines.
5. Adjustable-Rate Loan
An adjustable-rate mortgage loan is also called an ARM. This loan offers an adjustable mortgage interest rate, so the loan payment will fluctuate after the first couple of years (once the interest rate is fixed). This is a popular option when interest rates are high; usually the first few years of the ARM are considerably lower than the remainder of the loan.
6. The Fixed-Rate Loan
With a fixed-rate mortgage loan, your loan interest rate will stay the same throughout the lifetime of the loan, which can be a big advantage if you bought during a period of low rates. If you didn’t, you could refinance after rates drop if you’ve been paying your loan for at least six months.
7. Jumbo Loans
A jumbo loan is a loan that doesn’t conform to standards set by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, because the loan amount is too high. The amount of money that determines what is “too high” depends on your location. The standards for qualifying for a jumbo loan are higher than for a conventional or government-backed loan.
8. Home Equity Loans
Home equity loans are exclusively available to existing homeowners. The amount of equity you have in your home includes your down payment and the increased value of the property since you purchased it. People take out an equity loans for a number of different reasons: to make improvements to the house, pay off high interest credit cards, or more.
9. Bridge Loans
When you are interested in selling your house and want to buy a new one, you may not be able to afford two mortgage payments at once. A bridge loan can help you bridge the gap between one property and another, and can work well in markets where you’re likely to sell quickly.
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