Get to Know the Different Types of Home Loans

Get to Know the Different Types of Home Loans

Navigating your way around the home loans market can be a little difficult if you are not sure about the terminology used. There are many different types of home loans available and here we aim to simplify things for you so that you can understand what each type of mortgage could mean to you and your budget.

Adjustable or fixed rate?

If you obtain a fixed rate home loan you have certainty for the whole of the loan – the repayments will remain the same, month after month, year after year. This is perfect for you if you worry about interest rate changes.

Adjustable rate mortgages, or ARMs usually begin with a lower rate than the fixed rate option so may appear to be less costly, but bear in mind that they may end up causing you worry should they increase by a large amount, over the time of the loan.

Conventional home loan or government insured?

A conventional mortgage does was it says on the tin – this means that the loan is not backed by any government insurance or guarantee.

Government insured, (or backed,) loans come in 2 different forms – an FHA loan which is available to all borrowers, or a VA home loan which is available to service personnel and their families. The advantage of a VA loan is that no down payment needs to be made.

Conforming or nonconforming home loan?

Conforming home loans are available, but only up to a certain amount, set by the Federal Housing Finance Agency. The benefit of a conforming loan is that, (in general,) interest rates are lower and a smaller down payment is needed than with a nonconforming loan, or ‘jumbo’ loan.

Nonconforming mortgages are suitable for those who want to spend a greater amount on their home. You will need to have excellent credit and a large down payment to qualify for one of these loans.

Questions? We can help. Contact us today.

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