Mortgage Types Explained

1: Fixed-Rate Mortgage

The interest rate will never change with Fixed-Rate Mortgages. You will always know exactly how much interest you will pay over the loan term, and you won’t have to worry about fluctuations in the interest rate increasing your monthly payment. Note - changing property taxes and homeowners’ insurance may still cause slight fluctuations in your monthly payment.

The conventional 30-year fixed-rate mortgage is the most popular home loan in the U.S., but it does require a good credit score. Lenders may require that borrowers make a down payment of 20% or more to qualify for this loan, but that keeps monthly payments down by eliminating compulsory PMI. A fixed-rate mortgage is generally the best choice for homebuyers who desire lower monthly payments and predictable interest rates.

If you’re considering a fixed-rate mortgage, determine if you can afford the payments on a 15-year term as opposed to the 30-year term. The interest rate will be lower, the loan will be paid off quicker , and you will be able to build equity in your home faster.

2: Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM), sometimes called a variable-rate mortgage or tracker mortgage, is a home loan that may have intermittent changes to the interest rate. These types of mortgages often feature a lower fixed rate for a portion of the loan before the adjustment period begins.

One of the most common examples of an adjustable-rate mortgage is what is known as the 5/1 ARM. In this mortgage, the rate will remain flat for the first 5 years of the loan, then the lender has the ability to adjust the rate annually based on current market costs.

ARM loans are most commonly used by buyers who do not plan to stay in their homes for a long time. For example, if a newly-married couple is looking for an affordable option for a couple of years but knows that they will likely need to move into a larger space as their family grows, they may consider taking out an ARM loan to take advantage of the lower rate early on. However, they may sacrifice equity by moving from one home to the next so quickly, and they may also be responsible for closing costs on one or both mortgages.

3: FHA Mortgage

An FHA mortgage is a government-backed loan insured by the US Federal Housing Administration. These types of loans can only be made by FHA approved lenders and have fewer restrictions placed on borrowers compared to other loan types. FHA loans may be offered as 15 or 30-year fixed-rate mortgages or as ARM loans.

Qualifying for an FHA loan is generally easy, and they often require down payments as low as 3.5%. These loans are for smaller amounts than conventional mortgages and require mortgage insurance premiums. FHA mortgages are generally the best option for borrowers who have low credit scores and can’t afford to put down the 20% required for fixed-rate mortgages.

4: VA Mortgage

A Veterans Administration (VA) mortgage is s government-back loan that is insured by the Department of Veterans Affairs. These types of loans are only available through VA approved lenders for qualified military service members & veterans. The VA does not require a minimum credit score to qualify, but the lender may choose additional borrower requirements.

Despite a required VA funding fee, VA mortgage payments are generally lower because they have no down payment or mortgage insurance requirements. Because of this, VA mortgages are considered by many to be a reward for military personnel.

5: USDA Mortgage

A USDA mortgage, offered through the United States Department of Agriculture’s Rural Development Guaranteed Housing Loan Program, is a government-backed loan. These types of home mortgages offer a no-down-payment loan, but are only eligible in certain qualifying rural or suburban areas.

USDA mortgages are generally more lenient for borrowers and offer lower interest rates and monthly fees. However, they do require upfront guarantee fees and have an annual fee. They’re also only available to specific areas and subject to limits on income and property value. These mortgages are popular with homebuyers in rural areas who aren’t able to make a large down payment.

6: Jumbo Mortgage

A jumbo mortgage is a non-conforming loan because it exceeds the limit set by the Federal Housing Financing Agency (FHFA). These loans are also non-conventional because they can’t be purchased or guaranteed by Fannie Mae or Freddie Mac. What qualifies as a jumbo loan vary by county, and the FHFA updates these numbers. These loans are often used to buy high-end or luxury properties and come with unique lending requirements based on the lender.

To qualify for a jumbo mortgage, a borrower needs a high credit score, cash savings, and a high income. Jumbo mortgages usually require a down payment of 10% or more and will have higher closing costs than other mortgages because of the higher loan amounts. These loans may be offered as either fixed- or adjustable-rate mortgages.

7: Balloon Mortgage

Lender’s structure balloon mortgages to have the borrower make interest-only payments each month until the end of the loan term, at which time the full balance is due in a final lump sum. They’re common in commercial real estate and often end in the borrower refinancing the mortgage before the payment comes due. Balloon mortgages tend to be short, typically lasting only 5-7 years.

There are occasions where a homebuyer might select a balloon mortgage because they don’t expect to stay in their home very long. However, they will not build equity in the home and may not be better off than if they had rented.

8: Bridge Mortgage

Current homeowners looking to finance a new property can use their current home as collateral with a bridge loan. These are short-term loans that typically last a year or less, but they can also put the borrower in a position to pay 2 mortgages at the same time. However, payments can be interest-only until the original property is sold, so the expense of taking on a bridge loan may not be quite as intimidating as some alternatives.

Homeowners frequently use bridge loans to transition between homes. Those who want to finance the purchase of a new home while they wait for their current home to sell may consider a bridge loan. This can give the borrower the ability to make an offer on a new home without the need for a selling contingency.

Conclusion

There are many types of mortgages, and it can be overwhelming trying to determine which one is best for you. If you have any questions about the different mortgage types, or which one may be best for you, please give me a call. I will also connect you with the best lenders in West Texas that will treat you with courtesy and respect, ensure your home is funded timely and be available face-to-face if issues arise.

NOTE - If you’re planning on selling and are in the market for a top agent to make it happen, I would love to help!

We provide real estate services to these West Texas cities - Abernathy, Brownfield, Buffalo Springs, Crosbyton, Denver City, Farwell, Floydada, Idalou, Hale Center, Lamesa, Levelland, Littlefield, Lubbock, Muleshoe, New Deal, New Home, Olton, Plains, Plainview, Post, Ralls, Ransom Canyon, Seagraves, Seminole, Shallowater, Spur, Sudan, Sundown, Tahoka, Tulia and Wolfforth.

We provide real estate services to these counties - Bailey County, Briscoe County, Castro County, Crosby County, Dawson County, Dickens County, Floyd County, Gaines County, Garza County, Hale County, Hockley County, Kent County, Lamb County, Lubbock County, Lynn County, Parmer County, Scurry County, Swisher County, Terry County and Yoakum County.

-Turn the Key to your clean Slate-

Lainie Eilenberger, REALTOR

Key and Slate Real Estate Group

Keller Williams Realty

806-928-4453

Licensed Realtor in Texas

Sincerely,

Lainie Eilenberger Realtor, Key & Slate Real Estate Group

Phone (806) 928-4453

Email leilenberger@kw.com