Home Loan Types

Whether you’re a first-time homebuyer or a multi-property investor. Knowing the mortgage loan types can help you make the best decisions for your situation.

Home Purchases are one of the biggest decisions most people make in life. With many options out there, it’s important to know all of the home loan types available to you.

There are different types of mortgages for different types of borrowers. A mortgage is a loan used to purchase a property.

Which mortgage loan is best for me?

It’s hard to determine which home loan type is best for you, but it’s better to be informed about all of your options. Most people are not an expert at home Loans. At the Paul Mitchell Mortgage team, we are licensed professionals. We have a requirement to provide the best fiduciary advice for you. If you would like guidance on what home loan type is best for you. Please feel free to contact our mortgage team at (713) 714-0220 or send us an email.

We can point you in the right direction based on your current situation.   We work with all types of credit situations and property types, so whatever your situation may be, we can help you.

Conventional Mortgages

A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. Therefore, the lender is subject to a greater risk of default. Banks like this type of conventional loan because it has less regulation and oversight, but borrowers may find that there are more restrictions on how funds can be used (somewhat constraining). Conventional loans tend to have lower rates than other types.

Fixed-Rate Mortgage

A fixed-rate mortgage (FRM) is a type of mortgage where the interest rate is fixed for the entire term of the loan. This means that the monthly payments will be the same for the entire loan term. Fixed-rate mortgages are the most popular type of mortgage, and they offer stability because you know exactly what your monthly payments will be.

A fixed-rate mortgage offers you the consistency that can help make it easier for you to set a budget. Your mortgage interest rate, and your total monthly payment of principal and interest, will stay the same for the entire term of the loan.

Who it’s For

A fixed-rate mortgage is for borrowers who want the stability of knowing what their monthly payments will be. It’s also a good choice for borrowers who want to avoid any surprises in their monthly payments.

Term

The most common terms for a fixed-rate mortgage are 15 or 30 years.

Requirements

• A credit score of at least 620
• Down payment of at least 3%
• Debt-to-income ratio (DTI) that’s less than 45%
• Likely have to pay private mortgage insurance (PMI) if you put down less than 20% (but it may be able to be canceled once you own a 20% stake in the home)
• Verification of your income, assets, liabilities, and down payment

Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM) is a type of mortgage where the interest rate may change periodically, usually based on an index. This means that the monthly payments could also change. ARMs are a popular choice for borrowers who plan to stay in their home for a short period, or who want the lowest possible monthly payment at the beginning of the loan.

Who it’s For

An adjustable-rate mortgage might be a good choice for you if you want a lower initial interest rate. It can also be a good choice if you plan to sell your home within a few years.

Term

ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.

Requirements

• A minimum 5% down payment
• A minimum FICO® Score of 620
• A debt-to-income ratio (DTI) of no more than 50%.
• A maximum loan-to-value ratio (LTV) of 95%

Jumbo Mortgages

A jumbo mortgage is a type of mortgage that is larger than the typical mortgage. A jumbo loan is considered jumbo if the amount of the mortgage exceeds loan-servicing limits set by Fannie Mae and Freddie Mac — currently $548,250 for a single-family home in all states (except Hawaii and Alaska and a few federally designated high-cost markets, where the limit is $822,375).

Jumbo mortgages are available for primary residences, second or vacation homes and investment properties, and are also available in a variety of terms, including fixed-rate and adjustable-rate loans. A jumbo loan will typically have a higher interest rate, stricter underwriting rules and require a larger down payment than a standard mortgage.

Who it’s For

They are common in high-cost areas, such as California and New York. Jumbo mortgages are available in both fixed-rate and adjustable-rate varieties.

Term

Usually, a Jumbo Mortgage is offered in 30 years and 15 years fixed. Plus a 5 year / 6 Month ARM.

Requirements

• A credit score of at least 660 (though, in many cases, a score of at least 700 will be required)
• A debt-to-income ratio of less than 45%
• Down payment of at least 10% to 20%

Balloon Mortgage

A balloon mortgage is a type of mortgage where the principal balance is due at the end of the loan term. This means that you will need to pay the entire principal balance (the amount you borrowed) plus any interest that has accrued at the end of the loan term.

Balloon loans come in a few different types: there are interest-only mortgages where borrowers make monthly interest payments and pay the entire balance at the end of the loan. Then there are loans with principal and interest payments that lead to a smaller lump-sum payment at the end. They can be used for everything from cars and mortgages to personal loans.

Who it’s For

Balloon mortgages are typically for borrowers who want a lower monthly payment in the beginning, but who also plan to sell or refinance their home before the loan term is up.

Term

The most common terms for a balloon mortgage are 5, 7, or 10 years.

Unconventional mortgage loans

A non-conventional loan, or mortgage, is a type of loan that does not have to follow traditional mortgage loan requirements. Non-conventional loans sometimes refer to non-conforming loans. Conventional (or conforming) loans use wide sets of qualifications and eligibility, such as credit scores, loan amounts, and debt-to-income ratios. Also, most conventional loans require a 20 percent down payment minimum or private mortgage insurance payments.

Non-conventional home loans offer more flexible qualification requirements, often because the government has backed them. The Federal Housing Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture are all federal agencies that ensure these non-conventional loans to encourage homeownership.

FHA Loans

FHA loans are one of the most popular types of mortgages for first-time homeowners. They offer a range of options and a variety of mortgage products. If you have a low credit score or a less than perfect financial history, this is your best bet for getting a home loan. These mortgage loans may be used to purchase a home, build a new one, or refinance an existing mortgage.

An FHA loan is typically cheaper than other types of loans because it offers lower down payment requirements and can provide more lenient terms with regard to credit scores and debt-to-income ratios. The Federal Housing Administration (FHA) guarantees FHA loans so buyers can borrow up to 97.5% of the purchase price,

Who it’s For

For many first-time homebuyers, an FHA loan is the perfect solution. And for those who have low credit scores or less than perfect financial histories.

Term

30 year fixed, 15 years fixed, and 5/1 ARM.

Requirements

• A credit score of at least 580 (3.5% down payment)
• A credit score of at least 500 (10% down payment)
• A debt-to-income ratio of less than 43%
• The home must be your primary residence and, in most cases, can’t be a condo
• Must pay PMI upfront and annually (if you’re putting less than 10% down)

VA Loans

VA loans are a type of mortgage loan that is guaranteed by the United States Department of Veterans Affairs. This means that if you default on your VA loan, the Department of Veterans Affairs will reimburse the lender for any losses they suffer.

A VA loan is available to active military personnel, veterans, and their spouses. They offer a number of benefits, including:

Who it’s For

VA loans are perfect for active military personnel, veterans, and their spouses.

Term

30 year fixed, 15 year fixed, and 5/1 ARM.

Requirements

• Credit score around 620 (varies per lender)
• Can be used for primary residences only
• No minimum credit score requirement (lenders can make that determination case-by-case)
• No PMI requirement
• There is no down payment required
• A funding fee is charged, but that can be rolled into your loan, along with your closing costs

USDA Mortgages

USDA Mortgage is a type of mortgage that is insured by the U.S. Department of Agriculture (USDA). USDA loans Mortgage offers homeownership opportunities to people in rural areas who may not be eligible for conventional loans because they can’t make up for the down payment or closing costs in cash.

Applications are typically approved if the homebuyer meets basic eligibility requirements and can make a down payment, which must be at least 3.5% of the purchase price. Applicants who qualify for an interest rate reduction program get their fees waived and pay a minimum of 0.5% down, making USDA Loans the most affordable mortgage available today.

Who it’s For

For people living in rural areas or on tribal lands, USDA loans are the best option for getting a home loan.

Term

Typically 30 Year and 15 Year fixed-rate loans.

Requirements

• Credit scores as low as 620 are accepted (most lenders require 640+)
• Must meet certain income limits to be deemed eligible
• Must purchase a home in a USDA-eligible area
• No down payment required
• PMI required

Other Home Loans Types

There are other types of mortgage loans available. We have access to many nontraditional lenders and can help you find a program. That is one benefit of working with a mortgage broker, is that we have access to multiple mortgage lenders.

Bridge loan

A bridge loan is a short-term loan that can be used to cover the gap between the purchase of a new home and the sale of your old home. Bridge loans are typically used when you need to move quickly but don’t have the money to cover two mortgage payments.

Bridge loans are typically for a shorter term than traditional mortgages, and they come with a higher interest rate. This is because bridge loans are considered to be high-risk loans.

If you’re using a bridge loan to buy a new home, the lender will require that you provide evidence that you have a contract on your old home.

Reverse mortgages

A reverse mortgage is a type of loan that allows seniors to borrow against the value of their homes. With a reverse mortgage, the lender pays the borrower a set amount of money each month, and the borrower doesn’t have to make any payments on the loan until they die or move out of the home. This makes a reverse mortgage a good option for seniors who are looking for ways to supplement their income.

There are a number of different types of reverse mortgages, including:

-Single-purpose reverse mortgages: These are mortgages that can only be used for a specific purpose, such as paying for home repairs or healthcare expenses.

-Home equity conversion mortgages (HECMs): This is the most common type of reverse mortgage

construction loans

A construction loan is a way to borrow money for the purpose of constructing, renovating, or repairing the property. Construction loans are typically used to finance the building of a new house.

A construction loan may come with an option for the lender to receive the difference between the final sale price and the full value of the collateral in case of default on both the mortgage and homeowner’s insurance.

Interest-only mortgages

An interest-only mortgage is a loan where the homeowner pays the lender interest only. These types of mortgage loans often require significant down payment, around 50%. Since there is a low monthly mortgage payment they are popular for people who would otherwise purchase with cash.

Interest rates are typically higher on these loans than normal mortgages because they’re considered to be riskier. Interest-only mortgages are also noted as being an attractive option for people with high incomes.

Mortgage Insurance

Mortgage insurance is a type of insurance that protects the lender. This helps protect the lender from a default or short sale. This may be required in certain situations, such as if the person is taking out a mortgage over 80% of their home’s value.

This policy will cover any remaining balance on the loan after a foreclosure or short sale.

Mortgage insurance premiums typically cost around 0.5% to 1% of the loan amount each year.

Common Questions

What is the most common type of home loan?

Conventional fixed-rate mortgages are the most common type of home loan. These fixed interest rate loans vs having a variable interest rate. These types of home loans are available to 85% of all borrowers. They carry the same interest rate for the life of the loan. And they are viewed as one of the most trustworthy for home buyers.

A fixed-rate mortgage has a set interest rate for the life of the loan. The same interest rates apply as long as you make your payments on time and as long as you do not refinance or take out cash advances from the equity in your home. A fixed-rate mortgage is more predictable than an adjustable-rate mortgage because it doesn’t change with economic conditions.

What are the main types of mortgages?

There are two main types of mortgages, fixed-rate mortgages, and adjustable-rate mortgages. Fixed-rate mortgages offer a stable monthly mortgage payment. An adjustable-rate mortgage offers the convenience of a monthly payment that can be adjusted periodically.

Adjustable-Rate Mortgage (ARM)

An ARM typically has an adjustment period and a margin that varies with market changes. The ARMs’ interest rate on a 30-year loan might be fixed for two years and then adjust annually on the anniversary of your original mortgage date.

What is an APR?

APR stands for Annual Percentage Rate. This is the yearly cost of credit as a percentage of the borrowed amount, which includes all interest and fees.

What are the 4 types of loans?

There are 3 common consumer loans. They are Mortgage Loans, Credit Cards, Automotive, and Personal loans.