Frequently, first-time borrowers have this notion that all mortgage loans are the same. But the reality is, there are many different types of mortgage loans. They are varied in terms of payment, interest rate, capitalization, and many more.
If you are a first-time borrower, it is good to know as much as you can with the different types of mortgage loans, so you know what you are getting yourself into. There are many mortgage lenders in Houston so you can go ahead and inquire about what they have and learn about them before applying for one.
For knowledge purposes, here are some of the most common types of mortgage loans you should know about to make things easier for you.
It is one of the most popular types of an interest rate for mortgage loans. If you want to play safe and you don’t like changes then better choose this type. With a fixed rate, your interest rate is the same throughout your loan term. The payments will also be uniform for the entire duration. You do not have to worry about your payments going high anytime.
The adjustable-rate mortgage loan (ARMs) is the exact opposite of the fixed rate. With this, your interest rate may remain set for a certain, but it can eventually change. With this change, so are your payments. The good thing about this is that your interest rate could go lower, which is an advantage on your end. However, there is also the possibility that it will go up.
Conventional loans are one of the most natural types of mortgage loans to get. Since the government does not guarantee it, the requirements are not strict. You may get approved for it, but you have to remember that it comes with more onerous terms as compared to government-insured ones. The interest rate may be higher, and so are the monthly payments. The down payment may also be standard at twenty percent.
In general, government loans are advantageous in different ways since you can have a lower down payment, lower interest rates, and lower payments as compared to other types of loans. There are two common types of government-insured credit.
- FHA Loan
- VA Loan
Let’s talk about the Federal Housing Administration (FHA) loan first. This loan comes from the same government agency on its name. It often offers low down payments, as low as 3.5 percent of the total cost of the property. It also offers lower interest rates and fees. In any case the loan defaults, the government will pay the lender for any losses they incur, which is why they allow you those benefits. However, the requirements for this are more complicated than conventional loans, so approval is not easy.
The US Department of Veterans Affairs offers the VA loan to all military personnel and their family members. It is the loan with the lowest down payment offer at three percent. There are also situations where no down payment is required. You need to talk to your lender about that option if you are interested though.