The Assorted Types of Mortages Available Today

Buying your first home can lead to feelings of excitement and nervousness. One of the first steps you should do is learn about the different types of home loans that are offered for first time homebuyers. Since the housing market crash, there are fewer types of loans to chose from, making it easier to choose one. However, it is harder to qualify for a loan now if you have debt or a bad credit score.
Why are there fewer types of mortgages available
Ten years ago, there was a housing market boom due to so many various tailored home loans being available for risky homebuyers that had low credit scores, no down payments or an unsteady employment history. The real estate business was trying to get everyone into an owned home. In the past few years, the housing market took a large blow with unemployment and underemployment rising, that generated countless foreclosures to homeowners that could no longer afford to pay their mortgage each month.

How do Government and Conventional loans work?
Government and conventional loans both offer their own pros and cons.

A conventional loan usually requires a good FICO credit score of at least 640 to start being considered for the home loan. Additionally, you will also need 20 percent of the loan you are asking for as a down payment on the house you are interested in buying. However, a conventional home loan will not require you to have mortgage insurance; this will reduce your monthly payment.

Government loans now require a FICO score of 620 since the laws regarding home loans have been restructured in a stricter manner. Government loans are backed and insured by federal agencies in case of foreclosure on the homeowner. There are three main types of government loans; they are FHA loan, VA loan and USDA loans.

FHA loans are funded by FHA lenders and insured with the federal Housing Administration. If you qualify for an FHA loan, you can get a down payment as low as 3.5 percent, rather than the 20 percent required for a conventional home loan. A FHA loan’s credit requirements are also more lenient than other types of home loans.

VA loans are specifically for military personal and their families. If you qualify for a VA loan, you may be able to finance 100 percent of the home loan, removing the requirement for a down payment.

USDA loans are called “farmer loans” because they are usually reserved for rural areas of the country. If you are looking to get a home loan for a livestock farm or agriculture farm, then a USDA loan may be right for you.

What is the difference in Fixed or Adjustable-Rate Interest rates?
Almost all home loans can be placed in two main categories for their interest rates: fixed or adjustable-rate mortgages. Fixed rate mortgages offer the same interest rate for the length of your loan term. Given that an interest rate makes up part of your monthly payment, a fixed rate will assure that your monthly payment always stays the same as long as you have your mortgage. An adjustable-rate mortgage (ARM) loan has an interest rate that will fluctuate over time. ARM loans often start at a lower interest rate than fixed rate loan, but they usually rise over time, increasing your monthly payment through the years.

Author’s Bio
Kevin Robes is a blogger for Homeloans.org covering all kinds of home loan questions, concerns, and industry news.

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