The 5 Basic Mortgage Types

    Financing a home can be a complicated process, all those acronyms can get confusing. To help keep you from getting overwhelmed by all the mortgage information out there we put together a simple un-complicated explanation of the most common mortgage types.


     

    Fixed Rate Mortgage

    All mortgages fall under the category of fixed or adjustable. Fixed rate mortgages will have the same interest rate through the life of the mortgage. They are typically available for terms of 15, 20, or 30 years. This is a good option for people who want a consistent mortgage payment and plan to live in their house more than 5 years.

     



     

    Adjustable Rate Mortgage (ARM)

    Unlike a fixed rate mortgage adjustable rate mortgages, or ARMS, will not have a consistent interest rate. The rate will fluctuat, going up or down depending on market, which ads a certain amount of risk to the load.

    A Hybrid ARM, a version an adjustable rate mortgage, will have a fixed rate period at the start of the loan, typically 5 years. During this time the interest rate is usually lower than a fixed rate mortgage, but once that period is up the rate will change. This mortgage is not for everyone, but there are a lot of benefits for people planning on staying in their home for 5 or less years.

     



     

    FHA

    FHA mortgage loans are the first of two types of government backed loans discussed in this blog. They are meant for people who can’t afford the initial down payment of a conventional loan or have less than stellar credit. FHA loans have come to be known as the first-time home buyer loan but are available to anyone. The total amount of the loan is guaranteed to the lender by the government.

    To offset the cost to the government of guaranteeing the loan, borrowers pay Private Mortgage Insurance (PMI). The PMI on any given mortgage is set by the lender and can vary from lender to lender. Make sure to factor in the amount of the private mortgage insurance when deciding the month payment you can afford to make each month.

     



     

    VA

    VA loans are available to any active duty or veterans of the U.S military and are the golden egg of home loans. If you are a veteran there won’t be a better deal out there. This type of loan comes with some big benefits. They are financed 100% by the government, and don’t require PMI or a down payment.

    Va loans can be used to purchase homes, condominiums, or manufactured homes. These loans apply to more than just a purchase of a new home. They can be used to refinance your current house or finance energy saving improvements.

     



     

    Conventional

    Conventional mortgages are one of the most common types of mortgages. Most people choose conventional loans because they offer consistent interest rates, monthly payments, and provide the most stability.

    They are typically available for terms of 15 or 30 years and rates are usually low. However, you will need good credit and will have to put more money down than with a government backed loan. You may be able to put less than 20% down but the lender could require you to pay Private Mortgage Insurance(PMI).

     



     

    BONUS* Jumbo

    Jumbo mortgage loans are for those people looking to buy house that exceed the federal loan limit. For King, Peirce, and Snohomish county that limit is $726,525.(According to the Federal Housing Finance Agency). For those looking to purchase a home over the $726,525 limit jumbo loans are one of the most common choices.

    Home prices being what they are in the NW this kind of loan is not uncommon.  It does come with certain additional requirements. For example, borrowers will need to make a larger down payment 10-20%, have excellent credit, and prove they have an income larger enough to support the mortgage payments.


    There are many types of loans available, and this blog does not cover them all. Lenders also have their own requirements based on the history of the individual. Rates, percent down, and PMI vary with depending on the lender.

    Once you start the financing process the next step is to find a real estate agent. Find out everything you need to know about picking an agent here.

    5 Questions to ask Your Real Estate Agent

     

     

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    We speak North West. We speak Real Estate.

    Nandita S., Sammamish