Mortgages Part 4A: Types of Mortgages
Let's talk about the different types of mortgages available. We will start with the most common and boring, regular conventional mortgage loan.
If your credit is good to great, the first loan you should look for is a conventional mortgage loan. Why? It is the cheapest loan out there for you. There are hundreds if not thousands of lenders out there who would lend money to you, so the only thing they can compete on is price. The more unique your loan program is, the more it will cost.
If your credit scores are above 680, you’re considered to have good credit. Anything above 750 and it is considered great, and you can take advantage of the lowest rates out there.
What is a conventional mortgage?
A Conventional Mortgage is any loan that uses the guidelines established by Fannie Mae or Freddie Mac, and is not insured or guaranteed by the federal government. If you have good to great credit, have at least 10%-20% down payment, have a good income to debt ratio, and are borrowing within the conforming loan limit (explained below), you will have the most loan choices and should get the best rates. You will still need to consider the following:
- Whether to get a fixed rate mortgage or an adjustable-rate mortgage. (explained in part 4B)
- Whether you can do a full documentation loan, or if you are self employed, maybe a stated income loan (explained in part 4C)
So, what is a conforming loan limit?
The conforming loan limits are set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy mortgages from lenders. For most of the country, the conforming loan limit is $417,000. Some counties in the Hudson Valley New York have a conforming loan limit of $625,000. Any loan amount higher than the limit is considered a jumbo mortgage. (more information in part 4F)
What other loan programs are there?
- FHA loans are insured by the government. They are designed to help home buyers who may have a lower credit score, and only require 3.5% down payment. (Read more in Part 4D)
- VA loans are guaranteed by the Department of Veterans Affairs. They provide loans with lower credit score requirements, and only require 0% down payment, to help veterans buy homes after serving the country. (Read more in Part 4E)
- If you do not have 20% down payment, and do not want to pay PMI, you may get a piggy back loan. Some people also choose to get a piggy back loan in order to avoid getting a jumbo loan. (Read more in Part 4G)
Mortgage Guide Home | Previous Article: Getting a Mortgage Preapproval | Next Article: Fixed vs. Adjustable Mortgages
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