Choosing the right type of home to purchase is a task in and of itself. With so many types of mortgage loan programs available, this makes the task that much more difficult. Before making a decision, it is important to know the types of loans that are available as well as the benefits and risks of each. In addition to knowing the categories, take the time to research and review with a financial advisor.
Popular Mortgage Loans
The most popular types of mortgage loan programs include fixed-rate mortgages, Federal Housing Administration (FHA) loans, Veteran Affairs (VA) loans and interest only mortgage loans. Fixed-rate mortgage types are those that are amortized and give you the option of 15, 20, 30, 40 or 50-year mortgages at a fixed rate. FHA loans are ideal for first-time home buyers since FICO scores are not relevant and the down payment requirements are minimal; these types of loans are backed by the government through mortgage insurance. VA loans are available to veterans and, in some cases, the spouses of veterans who have passed; this government loan does not require a down payment. Interest-only mortgage are not really interest-only, these loans include the option of making an interest-only payment.
Hybrid Mortgage Loans
There are also hybrid mortgage loans which include option ARM mortgage loans, adjustable-rate mortgage loans, piggyback/combo mortgage loans and mortgage buydowns. Option ARM mortgages are based on an adjustable rate; these complicated mortgage loans may end in negative amortization. Adjustable-rate mortgages come in a variety of options where the interest rate fluctuates on a monthly, annually or semi-annually basis; it can also remain fixed for a certain period of time. Piggyback/combo mortgage loans consist of two loans, a combination fixed-rate and adjustable-rate mortgages or two of each. Mortgage buydowns are when you, as the borrower, pay fees to lower the interest rate initially.
Specialty Mortgage Loans
Specialty mortgage loans also exist and include bridge/swing mortgages, equity mortgages, streamlined-k mortgages and reverse mortgages. Bridge/swing mortgage loans are used in instances where the home is on the market but has not yet been sold; the seller is borrowing equity from the home to purchase another home. Equity mortgage loans are used to receive cash and can be fixed, adjustable or used as a line of credit. A streamlined-k mortgage loan is used to repair, or fix-up, a home. Reverse mortgages can have fixed or adjustable rates and are available to homeowners who are at least 62 years old; in this case, if the homeowner has enough equity, the lender makes payments on a monthly basis to the homeowner instead of the lender receiving payments. This happens as long as the owner lives in the home.