Types of Mortgages Every Homebuyer Should Know

It is incredibly rewarding to own your own home. However, it is a big investment and the financial side of things can be incredibly challenging and overwhelming. Real estate investments can be quite costly and most people cannot afford it on their own. 

That is why the majority of people resort to mortgage loans to buy a house. There are several different types of loans for people to choose from according to their budget and specific circumstances. Here are some of the most popular types of mortgages every homebuyer should consider. 

Conventional Mortgage Loans

A conventional home mortgage loan is one that individuals can apply for without needing the insurance of the government. You can apply for this type of loan whether this would be your first or second home purchase, or even if you are buying real estate for the purpose of investment. With any kind of mortgage comes a borrowing cost, and the great thing about this type is that it does not cost that much in comparison to others. On certain occasions, you can make a downpayment of only 3% to get your loan approved and start making your payments as planned with the lender. Within the conventional mortgage type, there are two subtypes of loans that homebuyers can choose from. 

• Conforming 

The government sets a maximum loan limit depending on the geographical area where you would be getting your loan and your house. If the conventional loan you are applying to get for a family home is less than the amount set by the federal government, or in this case, the federal housing finance agency (FHFA), then you would be getting a conforming mortgage. Basically, this type of loan conforms to the standards set by Fannie Mae and Freddie Mac, which are two institutions sponsored by the FHFA to buy and sell mortgages. 

• Non-Conforming 

The non-conforming mortgages, or jumbo loans,  are the complete opposite of the conforming ones. These are for loans that exceed the limit amount set by the FHFA and do not conform with the Fannie Mae and Freddie Mac standards. These types of loans can be great for homebuyers yet riskier for lenders. 

Government-Insured Loans

Unlike conventional loans, government-insured loans are made specifically for first-time buyers. They are more flexible and offer a variety of options for those who do not qualify for conventional loans. This type of loan is especially suitable for those who are categorized to have a low to moderate-income and a stable job when on the hunt for a new home. You would not need a large down payment and you would easily be able to arrange payment plans with the lenders as you see fit. 

Fixed-Rate Mortgages

When it comes to getting any loan for a house, you would have to establish some kind of payment plan for how you are going to pay back the money you owe your lender. As loans come with interest rates, the fixed-rate mortgages allow homebuyers to get the money they need and pay back what they owe with a set interest rate that does not change over time. 

The economy fluctuates every now and then and with it does the value of currencies and loans. Getting a fixed-rate mortgage ensures homebuyers that they would continue to pay the rate they agreed upon with the lender for the entire duration of their payment plan regardless of the economical status of the country. 

Adjustable-Rate Mortgages

Some people prefer to take risks with the economy and benefit from its fluctuation over the years. For those people, the adjustable-rate mortgages are the perfect option as it offers homebuyers an initial 10-year period of fixed-rate payments, then alters the interest rates according to the market situation. People can greatly benefit from this loan type or lose a lot of money. It is risky but in a lot of cases, it is worth it. 

Investing in real estate can be incredibly rewarding. Whether you are buying a home to live in or as an investment, the key to making your house purchase worthwhile is knowing what type of mortgage loan would be best for your situation. There is something for everyone when it comes to getting a loan to buy a house. Even if you have a low to moderate-income, you can still apply to get cash to help you own the house of your dreams. However, it is important that before you sign on to any mortgage type that you do enough research to fully understand what you are getting into.