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Mortgage Types

Date Added: December 06, 2010 03:16:58 PM
If you are looking to buy a home or even refinance the mortgage loan you currently have, there are a number of options available to you. Most of us are familiar with conventional fixed rate mortgage loans and second mortgages, but there are a great number of other mortgage types which you could pursue if you have difficulty qualifying for a conventional loan.

Conventional Fixed Rate and Adjustable Rate Mortgages

Most conventional mortgages are amortized over a period of years usually 15, 20 or 30 years, and carry fixed rate interest. However, those loans are usually limited to people with decent credit scores who have proven to be creditworthy. The next step would be an adjustable rate mortgage (ARM) that changes with prime rates and can fluctuate considerably. In recent years the government passed legislation to keep lenders from predatory lending by capping the amount and frequency of interest increases. Many people are willing to accept an ARM in the beginning while they build credit with the hope of refinancing with a fixed rate mortgage down the road.

FHA and VA Mortgage Loans

There are two government programs that have a direct impact on a consumer’s ability to get a mortgage loan. The first is sponsored by the Federal Housing Administration, FHA, and although the loan is issued through a conventional lender, the federal government insures the loan which makes it easier for a first time home buyer to qualify for a loan. The down payments are minimal and FICO scores are not relevant. Mortgage loans available to veterans are sponsored through the Department of Veteran’s Affairs and just like FHA loans, this mortgage type is issued through a conventional lender. The difference is that VA loans are guaranteed by the government and only available to veterans and sometimes spouses of deceased veterans.

Interest Only and Balloon Mortgages

Calling a mortgage an interest only loan is a bit of a misnomer because the borrower will eventually need to pay the loan, but for the term of the mortgage loan, the consumer will only pay interest. At the end of the term the amount will be payable in full which is why they are often referred to as a balloon mortgage loan. Sometimes this is an ideal loan if a conventional mortgage cannot be found as it gives the homebuyer time to find refinancing without losing out on the purchase of a home.

These are just the most common mortgage types for a first mortgage. However, there are second mortgages currently referred to as home equity loans and mortgage buydowns, piggyback or combo mortgages and a number of other types available. Finding one to suit your needs is easier if you know your options. If you are not sure how much your mortgage payments will be, use the simple mortgage calculator to estimate them.