Mortgage originations are expected to reach $2.59 trillion in the next year. That’s mostly because interest rates are still low and home values continue to increase.
If you’re looking for a mortgage soon, you know that it’s a long process. Getting the right mortgage is important because this payment stays with you for years.
That starts with knowing the types of mortgage loans available and the advantages of each. How can you make sure that you’re in line to get the right mortgage?
Keep reading to learn what the best home loans are.
1. Conforming
Mortgages are processed by banks and other financial institutions. A lot of these loans get sold to Freddie Mac and Fannie Mae, so lenders can continue to lend money to more customers.
Fannie and Freddie are government institutions, and they don’t buy every type of loan. The Federal Housing Finance Agency decides the types of loans they can purchase from lenders.
The loans that conform to those rules are conforming loans. A non-conforming loan falls outside of those rules.
Non-conforming loans are for large amounts of money, those with a low down payment, or with low credit scores.
2. Fixed-Rate
Fixed-rate mortgages are mortgages with a fixed interest rate. The interest rate stays the same for the entire life of the loan.
Since interest rates are at record lows right now, it’s the perfect time to get a fixed-rate mortgage. That’s partially what’s driving demand in the real estate market.
If you get a fixed-rate loan and interest rates drop further, you can always refinance at a lower rate.
3. Guaranteed
A guaranteed loan is also called a government-backed loan. These are loan programs for situations and certain populations backed by the financial power of the United States government.
The federal government steps in and pays for the loan if you default on it. First-time homebuyers, veterans, and people buying in rural areas might qualify for these loans.
These loans don’t guarantee that you’ll get approved. You still have to meet the standards of the bank and federal government’s rules.
Lenders have to comply with regulations and go through audits like a Mortgage Compliance Review program.
4. Adjustable-Rate
Adjustable-rate mortgages have an interest rate that fluctuates during the life of the loan. You should consider these loans when interest rates are high.
You can assume that the rates will drop, as will your mortgage payments. These aren’t great for times when interest rates are low because when rates increase, your payments will as well.
5. Balloon
A balloon mortgage is a loan that has small to no monthly payments for the first years of the loan. After a specified amount of time, the balance of the loan is due.
You’ll pay the balance in one large payment. People who plan to sell or refinance in a few years get balloon loans.
They have a lot of risks because if you can’t refinance or sell the home, you’re stuck with a huge mortgage payment.
Knowing the Types of Mortgage Loans
What are the best mortgage loans for you? It depends on your financial situation and your homebuying status. This article showed you the types of mortgage loans to consider.
Weigh your options carefully and get professional advice before you decide. Head over to the home page of this site for more great content today!
