Types of Mortgages
There are different types of lenders, mortgages, loan programs, and loan products available. Which type of mortgage products are best depends on the borrowers’ situation. A mortgage is a loan that is used to purchase and finance real estate. The loan is paid back over time and the real estate is used as collateral for the loan. Fixed rate mortgages have a fixed interest rate for the entire loan period, whereas Adjustable Rate Mortgages have a set interest rate for a certain period of time, then the interest rate adjusts after that time period ends. Conforming loans are within the loan amount limits and underwriting guidelines set by FHFA, Fannie Mae and Freddie Mac as opposed to Non Conforming Loans which are not. Government Backed Mortgages are insured by the Federal Government as opposed to Conventional Loans that are not.
- Conforming or Non-Conforming
- Fixed Rate or Adjustable Rate
- Conventional or Government Backed
- Conforming and Non-Conforming Home Loans
Mortgages are either conforming or non-conforming. Conforming Mortgages are loans that are within the federal conforming loan limt which is set annually by the Federal Housing Financing Agency, Fannie Mae and Freddie Mac. Non Conforming loans are loans that do not fall within the loan limit underwriting guidelines set.
Conforming Loans often offer better rates with lower down payments and are easier to qualify for.
Non-Conforming Loans sometimes referred to as Jumbo Loans, often have higher interest rates and less favorable terms for borrowers, due to exceeding the loan limits and or not meeting underwriting guidelines set, additionally, non-conforming loans can be more challenging for lenders to sell on the secondary market.
Mortgage Interest Rates
Mortgages are either fixed rate or adjustable rate. Mortgage Interest Rates change often. At the time of the mortgage pre-approval process, the lender will offer an interest rate lock. The interest rate will either be locked in for the life of the loan if using a fixed rate mortgage or for a set term of time if using an adjustable-rate mortgage
Fixed Rate Mortgages are loans that have the same interest rate for the entire duration of the loan term. Fixed Rate Mortgages can be beneficial for homebuyers to have security and peace of mind in knowing what the mortgage rate will be for the entire term of the loan thus helping to plan for a budget.
Adjustable Rate Mortgages are loans that have an interest rate set for a certain period of time in a loan. Once the set period is up, the rate becomes adjustable. Adjustable Rate Mortgages often can offer a lower interest rate at the time of the loan origination, and be set for a number of years/months, but then after the set period, the rate becomes adjustable. Adjustable Rate Mortgages could offer lower payments at the beginning of the loan term.
Conventional and Government-Backed Mortgages
Mortgages are often either conventional mortgages or government-backed mortgages although there are many mortgage loan products and mortgage loan programs available through various lender types for different situations and circumstances.
Conventional Mortgages are loans that often offer attractive terms and rates, require down payments of 20%, and do not require borrowers to pay Primary Mortgage Insurance. Additionally, Conventional Mortgage Loans often have stricter qualifying requirements.
Government Backed Mortgages
Government Backs Mortgages are loans that are insured by the Federal Government. Because the loans are insured by the Federal Government, lenders are able to offer easier credit qualifying. Government-backed mortgages often require lower and sometimes even zero down payment options. The lower down payment required helps to make homeownership a possibility when saving up for a down payment is a challenge. There are several home loan products and loan programs available, such as USDA Rural Home Loans, VA Home Loans, FHA Home Loans, Fannie Mae and Freddie Mac Home Loan Programs.