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Fixed-Rate Mortgage Types
This is the granddaddy of them all. Now you can choose from 10-year, 15-year, 20-year, 30-year fixed-rate mortgages, all of which are fully amortized.
FHA mortgage loan types are insured by the government through mortgage insurance that is funded into the loan. First-time home buyers are ideal candidates for an FHA loan because the down payment requirements are minimal and FICO scores do not matter. Lenders require a minimum 3.5% down payment that can be all or partially gifted by a relative/family member.
This type of government loan is available to veterans who have served in the U.S. Armed Services and, in certain cases, to spouses of deceased veterans. The requirements vary depending on the year of service and whether the discharge was honorable or dishonorable. The main benefit to a VA loan is the borrower does not need a down payment. The loan is guaranteed by the Department of Veteran Affairs, but funded by a conventional lender. VA loans require no borrower down payment and can be 100% financed by the lender, including all closing costs.
Interest-Only Mortgage Types
Calling a mortgage loan type an “interest-only mortgage” is a bit misleading because these loans are not really interest only, meaning the borrower pays only interest on the loan. Interest-only loans contain an option to make an interest-only payment. The option is available only for a certain period of time. However, some junior mortgages are indeed interest only and require a balloon payment, consisting of the original loan balance at maturity.
Interest only financing is available on 3, 5, 7 and 10 year fixed periods of time before they convert over to adjustable rate loans at the end of the fixed period.
Combo / Piggyback Mortgage Loan Types
This type of mortgage financing consists of two loans: a first mortgage and a second mortgage. The mortgages can be adjustable-rate mortgages or fixed-rate or a combination of the two. Borrowers take out two loans when the
down payment is less than 20% to avoid paying private mortgage insurance.
Adjustable-Rate Mortgage Types
Adjustable-rate mortgages (ARMs) come in many flavors, colors and sizes. The interest rate fluctuates. It can move up or down monthly, semi-annually, annually or remain fixed for a period of time before it adjusts. These types of loans are available as 1, 3, 5, 7 and 10 years terms. They convert over to adjustable rate loans at the end of the fixed term of the loan.
Borrowers who want to pay a lower interest rate initially often opt for mortgage buydowns. The interest rate is reduced because fees are paid to lower the rate, which is why it’s called a buydown. Buyers, sellers or lenders can
buy down the interest rate for the borrower.
Specialty Mortgage Loan Types
Streamlined-K Mortgage Loans
Like the 203K loan program, FHA has another pr0gram that provides funds to a borrower to fix-up a home by rolling the funds into one loan. The dollar limits for repair work are lower on a Streamlined-K loan, but it requires less
paperwork and is easier to obtain than a 203K.
Bridge / Swing Loans
These types of mortgage loans are used when a seller has put a home on the market — but it has not yet sold — and the seller wants to borrow equity to buy another home. The seller’s existing home is used as security for a
bridge (also called swing) loan.
Equity Mortgage Loan Types
Equity loans are second in position and junior to the existing first mortgage. Borrowers take out equity loans to receive cash. The loans can be adjustable, fixed or a line of credit from which the borrower can draw funds as
needed. Financing up to 90% of the value of the property and loan amount up to $350,000.
Reverse mortgage are available to any person over the age of 62 who has enough equity. Instead of making monthly payments to the lender, the lender makes monthly payments to the borrower for as long as the borrower
resides in the home. The interest rate can be fixed or adjustable.