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Mortgage Types: How to Determine The Perfect Fit For You

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There are many types of mortgages available in the market, and it can be confusing to determine which one is perfect for you. In this blog post, we will talk about the different types of mortgages and how to select the best one for your needs. So if you’re looking to buy a home or commercial property, make sure to read this post!

The first thing you need to do when applying for a mortgage is to gather all the necessary documentation. This includes your employment verification, credit report, and tax returns. The lender will use this information to determine your eligibility for a loan.

Once you have all the required documents, the next step is to decide what type of mortgage you want. Below are the most common types of mortgages you can choose from:

Types of Mortgages

1. Conventional Mortgages

A conventional mortgage is a loan that is not insured or guaranteed by the government. This comes from a private lender, such as a bank or credit union. Conventional loans typically have fixed interest rates and terms. This means that your monthly payments will stay the same for the life of the loan.

There are two types of conventional mortgages:

  1. Conforming Mortgage

This type of mortgage conforms to the guidelines set by Freddie Mac and Fannie Mae. In order to qualify, you must have a good credit score and a down payment of at least 20%.

  1. Non-Conforming Mortgage

This type of mortgage does not meet the guidelines set by Freddie Mac and Fannie Mae. These loans usually have higher interest rates and may require a larger down payment.

2. FHA Mortgages

A Federal Housing Administration (FHA) loan is a mortgage that is insured by the FHA. These loans are designed for homebuyers with low credit scores and can be easier to qualify for than conventional loans. FHA loans typically have lower interest rates and down payments than conventional loans.

There are two types of FHA mortgages:

  1. Title I Property Improvement Loan

This type of loan is used to finance improvements on an existing home. The maximum loan amount is $25,000 and the repayment period is up to 20 years.

  1. Title II Mortgage Programs

These programs are designed for homebuyers with low or moderate incomes. There are four types of Title II mortgage programs:

  • Section 203(b) Mortgage Insurance for One-to Four-Family Homes
  • Section 203(k) Rehabilitation Home Mortgages 
  • Section 235 Direct Homeownership Down Payment Assistance Loans 
  • Section 251 Adjustable Rate Mortgage Insurance Programs for One-to Four-Family Homes

3. VA Mortgages

A VA loan is a mortgage that is guaranteed by the Department of Veterans Affairs (VA). These loans are available to eligible veterans, active-duty service members, and their spouses.

There are three types of VA mortgages: 

  1. Purchase Loans

These loans are used to finance the purchase of a home. You can borrow up to 100% of the purchase price, making it possible to buy a home with no down payment. 

  1. Interest Rate Reduction Refinance Loan (IRRRL)

This loan is used to refinance an existing VA loan at a lower interest rate. 

  1. Cash-Out Refinance Loan

This loan is used to refinance an existing mortgage and take out cash from the equity in your home. The maximum loan amount is 100% of the appraised value of your home, plus the funding fee.

4. USDA Mortgages

A United States Department of Agriculture (USDA) loan is a mortgage that is guaranteed by the USDA. These loans are available to eligible homebuyers in rural areas. USDA loans typically have low interest rates and down payments, and they can be used to finance up to 100% of the purchase price of a home. 

There are two types of USDA mortgages: 

  1. Direct Loan

This loan is for homebuyers with low or moderate incomes. The maximum loan amount is 100% of the appraised value of your home, plus the funding fee. 

  1. Guaranteed Loan

This loan is for homebuyers with higher incomes. The maximum loan amount is 102% of the appraised value of your home, plus the funding fee. 

5. Jumbo Loans

A jumbo loan is a mortgage that has a higher loan limit than conventional loans. These loans are designed for homebuyers with high incomes and good credit scores. Jumbo loans typically have lower interest rates than conventional loans. 

Now that you know the different types of mortgages, how do you decide which one is right for you?

Here are a few mortgage application factors you should consider:

  • Credit Score: Your credit score will affect the interest rate you qualify for. The higher your credit score, the lower your interest rate will be. 
  • Debt-to-Income Ratio: This is the ratio of your monthly debt payments to your monthly income. Lenders use this ratio to determine how much of a mortgage you can afford. 
  • Down Payment: The size of your down payment will affect the type of mortgage you qualify for. If you have a down payment of less than 20%, you will need to get private mortgage insurance (PMI). 
  • Location: The location of the property you are buying will affect the type of mortgage you can get. If you are buying a property in a rural area, you may be eligible for a USDA loan. 
  • Property Type: The type of property you are buying will also affect the type of mortgage you can get. If you are buying a condo, you may need to get a different type of loan than if you were buying a single-family home. 

Now that you know about the different types of mortgages, and what factors to consider when applying for one, it’s time to start shopping for a home. Use our commercial real estate CRM to keep track of your prospects and clients, and stay organized throughout the home buying process.