Residential mortgage loans

Residential mortgage loans

Residential mortgage loans

Buying a home for most people will be the biggest financial investment of their lives. Since 99% of us cannot afford to buy a home outright, we will need to get a home mortgage loan from a bank or other financial lending institution. There are many mortgage options, and an inexperienced homebuyer can quickly feel overwhelmed when looking at hundreds of thousands of dollars and decades-long commitments. This article is meant to serve as a simplified guide to the different types of home mortgage loans to educate the home buyer.

Some of the different types of mortgages include fixed rate mortgages, adjustable rate mortgages, government insured loans, conventional mortgages.

Fixed rate mortgages carry the same interest rate for the entire term of the loan. This means that your monthly payment to the bank will be exactly the same every month, year after year. These types of loans are often packaged as 15-year or 30-year loans. A 15-year package will naturally have higher monthly payments than a 30-year package because it has to be paid off over a shorter period of time.

Adjustable rate mortgages, or ARMs, are loans whose interest rate changes based on the market. Some ARMs remain fixed for a certain number of years and then switch to an adjustable rate, while some ARMs carry an adjustable rate for the first few years and then remain fixed. These are hybrid ARMs. An example of a hybrid would be a 5/1 ARM loan where there is a fixed interest rate for the first five years, after which that interest rate will adjust each year to the market.

A conventional loan simply means that it is not backed by the government. A government-insured loan is a loan that is guaranteed by the government, guaranteeing the lender against the borrower’s default. There are several different types of government-backed loans; VA Loans, FHA Loans, USDA/RHS Loans.

A VA loan is a loan that is offered by the US Department of Veterans Affairs. Va loan is offered to former or current military service members and their families. A big advantage of this type of loan is that the borrower can get 100% of the loan in advance, which means no down payment.

An FHA loan is a loan made by the Federal Housing Administration and administered by the Department of Housing and Urban Development (HUD). This type of loan allows you to pay a very low down payment, just 3.5% of the total loan, unfortunately this means you have to pay more monthly payments.

The USDA/RHS loan is a United States Department of Agriculture loan, this program is overseen by the Rural Housing Service (RHS). This loan is designed for low-income borrowers who live in rural areas and have trouble getting financial help from traditional lenders.

#Residential #mortgage #loans

Leave a Comment

Your email address will not be published.