When you are looking forward to purchasing a new house, you will come across the need to go for a mortgage as well. This can be quite a confusing process, as you can find many different types of mortgage loans. That’s why we thought of reviewing the different types of mortgages, so that you can figure out what the best option for you is.
Conventional mortgage loans
Conventional mortgage loans don’t have the backing of the federal government. If you are a person with a good income history, stable employment, and good credit score, you may go for a conventional mortgage. Moreover, you should be in a position to put at least a 3% downpayment to get the loan. However, it is better if you can put at least 20% as the downpayment, so that you can refrain from getting private mortgage insurance.
Conforming mortgage loans
There is a maximum limit for the confirming loans as defined by the federal government. This maximum limit would vary depending on your geographical location. The baseline for getting a confirmed loan in 2022 was $647,000. But if you are living in an expensive region such as San Francisco or New York, you will have to deal with a much-higher limit.
Non-conforming mortgage loans
Non-conforming mortgage loans refer to the mortgage loans that you cannot buy from Freddie Mac and Fannie Mac. This restriction is there because of the underwriting or loan amount guidelines. One of the most common examples for non-conforming mortgage loans includes Jumbo loans. The main reason why these mortgage loans are called Jumbo loans is because the loan amount usually exceeds the limit as defined by the conforming loans.
Issuing non-conforming loans can be risky for any lender. This is the main reason why a borrower should be able to show a bigger cash reserve to go for this loan. On top of that, the borrower will need to make a downpayment of around 20% or more.
Government-Insured Federal Housing Administration Loans
If you are a buyer with a low to moderate income, going for a Government-Insured Federal Housing Administration Loan would be a good option to consider. That’s because these loans are insured by the Federal Housing Administration. You will only be asked to make a lower down payment, which can be around 3.5%. Moreover, the credit score requirement associated with these loans is quite relaxed. As a result, anyone from a low-income family or a moderate-income family may go for it.
Government-Insured Veterans Affairs Loans
If you are a veteran, you may consider going for Government-Insured Veterans Affairs loans. These loans are backed up by the United States Department of Veterans Affairs. Not just qualified veterans, but active military service members, and spouses of veterans can also borrow it. A great thing about these loans is that you will be able to borrow 100% of the loan amount, without having to make any downpayment. On top of that, you can get the loan without PMI and at a lower interest rate.
Government-Insured U.S. Department of Agriculture Loans
The Government-Insured U.S. Department of Agriculture Loans are backed up by the United States Department of Agriculture. The objective of this loan is to assist low-income homebuyers who live in the rural areas. You can qualify for this loan without a downpayment. However, the property you buy should match the eligibility rules of USDA.
Final words
Now you are aware of the 6 different types of mortgage loans available for you to consider. Go ahead with the right type of loan out of these, and you will be able to buy your new home without any struggles.
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