Mortgages 101

Buying a home can be exciting but at the same time—stressful. With finances clear in mind, it is easy to feel intimidated. But don’t worry! We got you covered. Here are the basic mortgage plans you can choose from.

5 types of mortgage loans:
1. Conventional mortgages
2. Jumbo mortgages
3. Government-insured mortgages
4. Fixed-rate mortgages
5. Adjustable-rate mortgages

A conventional mortgage is is a home loan that’s not insured by the federal government. There are two types of conventional loans: conforming and non-conforming loans. A conforming loan simply means the loan amount falls within maximum limits set by Fannie Mae or Freddie Mac, government agencies that back most U.S. mortgages. On the other hand, loans that don’t meet these guidelines are considered non-conforming loans. Jumbo loans are the most common type of non-conforming loan. Generally, lenders require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price.

Jumbo mortgages are conventional loans that have non-conforming loan limits. This means the home prices exceed federal loan limits. For 2018, the maximum conforming loan limit for single-family homes in most of the U.S. is $453,100, according to the Federal Housing Finance Agency. In certain high-cost areas, the price ceiling is $679,650. Jumbo loans are more common in higher-cost areas and generally require more in-depth documentation to qualify.

The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. Three government agencies back loans: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans). Government-insured loans are ideal if you have low cash savings, less-than-stellar credit and can’t qualify for a conventional loan. VA loans tend to offer the best terms and most flexibility compared to other loan types for military borrowers.

Fixed-rate mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stay the same. Fixed loans typically come in terms of 15 years, 20 years or 30 years. If you plan to stay in your home for at least seven to 10 years, a fixed-rate mortgage offers stability with your monthly payments.

Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan resets to a variable interest rate for the remainder of the term. Look for an ARM that caps how much your interest rate or monthly mortgage rate can increase so you don’t wind up in financial trouble when the loan resets.

Read more about the pros and cons of each mortgage type here: https://www.bankrate.com/finance/mortgages/5-basic-types-of-mortgage-loans-1.aspx




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