Editors note: This is a guest post from our friends at Guild Mortgage. If you're in the market for a new home, ask us how you can get a home ownership investment to increase your purchasing power by partnering with Unison and Guild.
A mortgage is a loan from a bank or lender that helps you finance the purchase of a home. You not only have choices about where to go for a loan, but about what kind of loan you want. Those different types of mortgages are called products. Different lenders will have different products available to you, and each product will have different variations. Here’s a Glossary of some of the most common types of mortgage loan products.
Fixed Rate Mortgages
Fixed rate mortgages have a set interest rate, resulting in a fixed payment amount that will not change over the life of the loan. It’s particularly popular with first-time home buyers, and anyone who finds it easier to budget and plan around the predictability of a fixed payment. Loan lengths vary, but the most common term is 30 years. See more loan features here.
Adjustable Rate Mortgages
Adjustable rate mortgages (ARM) are conventional or government home loans that start at a fixed rate for a set period of time. After the period expires, the rate may go up or down once per year. Read about more features here.
Conforming Mortgage Loans
Conforming loans are non-government loans guaranteed by Fannie Mae and Freddie Mac, which are publicly-traded, government-sponsored enterprises. Homebuyers seeking a conforming loan typically enjoy the largest selection of loan products at the most competitive rates. However, they must meet specific financial requirements, and the loan amount may not exceed a certain amount, set at a county-by-county level. In 2017, the loan limit for single-family homes in most states is $424,100. See more info here.
Non-Conforming Mortgage Loans
Non-conforming loans are loans that cannot be bought by Fannie Mae and Freddie Mac. Jumbo loans are non-conforming loans.
Jumbo Mortgage Loans
Jumbo loans allow homebuyers to borrow more than through a conforming or government loan. They are conventional, non-government loans. They exceed loan guarantee amounts established by Fannie Mae and Freddie Mac. This requires the issuer to secure the loan themselves. Because of this, jumbo loans may come with different financial requirements and financing options than are available with conforming loans. Find out more here.
Federal Housing Administration (FHA) loans are a type of government loan widely used by first-time homebuyers and people with low-to-moderate incomes. FHA loans offer down payment options as low as 3.5%. They also require upfront and annual mortgage insurance premiums. Learn about more features as well as down payment assistant programs here.
Veterans Administration (VA) offers loans for eligible U.S. veterans, reservists, active-duty military personnel, National Guard and surviving spouses of veterans with available entitlement. VA loans often have more competitive terms than non-VA loans. More info here.
The United States Department of Agriculture (USDA) provides special financing opportunities to borrowers who live in rural areas as defined by the USDA. In fact, approximately 97% of U.S. homes are located in eligible areas. Learn more here.
This is a guest post from Guild Mortgage. The opinions and views expressed are solely those of the author.
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