Different Types of Loans and What They Offer:

Feb 07, 2017

Choosing which type of mortgage loan is right for you can be confusing, but we’re here to help.

Every home loan can be categorized as either fixed-rate or adjustable-rate:

• A fixed-rate mortgage loan has the same interest rate for the entire repayment term, so month after month, year after year, the payment amount doesn’t change. This is available for short-term and long-term payments.

• An adjustable-rate mortgage loan has an interest rate that changes or can adjust over the period of your repayment term. Typically, an adjustable-rate mortgage will change annually after an initial period of fixed payment.

In addition to choosing a fixed vs. adjustable-rate loan, we’ll help you decide whether a conventional home loan or a government-insured home loan is best for you:

• A conventional “regular” home loan is not insured or guaranteed by the federal government in any way.

• Government-insured home loans are broken down into 3 subcategories; FHA loans, VA loans, and USDA / RHS loans.

• FHA: The Federal Housing Administration(FHA) is run by the Department of Housing and Urban Development, which is a sector of the federal government. FHA loans are available to all types of borrowers, not just first time buyers. With this type of loan, the government insures the lender against losses that might result from borrower default.
• VA: The U.S. Department of Veterans Affairs offers a loan program to military service members and their families. Like the FHA loan, VA will reimburse the lender for any losses that may result in borrower default. A primary advantage to the VA loan is that borrowers can receive 100% financing for the purchase of their home, so that no down- payment is required at the time of closing.
• USDA / RHS: The United States Department of Agriculture offers a loan program for rural borrowers who can meet certain income requirements. The program is managed by the Rural Housing Service, which is a part of the USDA. This type of loan is offered to “rural residents who have a steady, low or modest income, and yet are unable to obtain adequate housing through conventional financing”.

Depending on the amount you are borrowing, your loan will either be a conforming loan or a jumbo loan:

• Conforming loan: They buy loans from the lenders who generate them, and then sell them to investors via Wall Street. A conforming loan falls within their maximum size limits, and otherwise "conforms" to pre-established criteria.

• Jumbo loan: This type of mortgage represents a higher risk for the lender, mainly due to its size. As a result, jumbo borrowers typically must have excellent credit and larger down payments, when compared to conforming loans. Interest rates are generally higher with jumbo loans.

This is only an overview of each type, to get more information give us a call today at (517)351-5626 and we will help you pick which option is best for you!