Far before you ever start checking out your dream homes in person, you’re going to want to know what loan types are available to you and what you qualify for. Putting off home loan comparisons will only make things more confusing as you scramble to close on a house.
The most common loan types for home loans and mortgage refinance
As a lender with 29 years of experience, we’re here to make things easy on you.
We’ve put together the most popular home loan types in the U.S. And what strings may be attached:
Most common mortgage option that normally has some of the best interest rates. Ideal for repeat buyers, usually with a 5 percent minimum (or a 3 percent minimum, in some cases) and 20 percent standard down payment.
FHA (Federal Housing Administration).
Less money down and more lax credit requirements to make home ownership more affordable. Ideal for first-time homebuyers, with a 3.5 percent minimum and 20 percent standard down payment.
Stay in contact with your loan officer the easy way. Our free LoanFly app offers the complete mortgage experience.
ARM (Adjustable Rate Mortgage).
Mortgage interest rates start out lower than other loans but may go up based on market rates. Ideal for any interested buyers, with a 5 percent minimum and 20 percent standard down payment.
A “repeat financing” loan used when a borrower purchases a house before selling their current home. A lender can use the bridge loan to wrap a new and current mortgage into one monthly payment. This makes the financial transition between two homes easier for those who qualify.
Down Payment Assistance.
Down Payment Assistance programs, in the form of grants, second mortgage loans, and tax credits, help to offset the initial cost of a mortgage by supplementing the down payment. Note that grants may not have to be paid back if you own and occupy your home for a certain period of time, according to Freddie Mac. Down Payment Assistance may be available to first-time and low- and moderate-income buyers.
Only the interest is paid on a mortgage through a set term of monthly payments, normally from 5 to 7 years. An interest-only loan starts with low monthly payments, though payments significantly increase after the interest-only term when the borrower begins to pay the interest and principal together.
A home loan that exceeds conforming loan underwriting guidelines established by Fannie Mae and Freddie Mac. Jumbo borrowers may have great credit and make a larger down payment, as this loan — with limits that exceed $625,000 in some states — is a bigger risk to the lender.
A home loan granted to purchase a house and make additional renovations, either with a fixed or adjustable interest rate. The total loan amount will factor in the home’s value after home improvements are made, spreading out renovation costs over the loan term to lower monthly payments.
A home loan available to homeowners age 62 and older that can be used to convert part of a home’s equity into cash. In a reverse mortgage, the lender makes monthly payments to the borrower. This loan product may help retirees on a limited income use their home equity for daily expenses or another purpose. As with any home loan, a reverse mortgage must be paid back. The homeowner is also still responsible for real estate taxes and maintenance costs. But payment for a reverse mortgage is deferred until the homeowner passes away or moves/sells their home.
Is there a better way to mortgage? We think so. Click here to find a Cornerstone near you.
VA (Veterans Affairs).
Eliminates the need for a down payment without the risk of PMI (Private Mortgage Insurance). Only military veterans are eligible, with no minimum down payment.
USDA (United States Department of Agriculture).
Mortgage option created to promote the purchase of rural land. Ideal for investors, with no minimum down payment.
Wondering which home loan is right for you? That’s what we’re here for. If we’ve learned anything from our decades spent working with borrowers, it’s that meeting with a lender is the first and most important move you can make to kick off the homebuying process. Understanding and choosing a loan type can put you in the driver’s seat. Prequalifying for a loan before you meet with a realtor puts you one step ahead.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.