Home Loan Types
Whether you’re a first-time homebuyer or a multi-property investor. Knowing the mortgage loan types can help you make the best decisions for your situation.
Home Purchases are one of the biggest decisions most people make in life. With many options out there, it’s important to know all of the home loan types available to you.
There are different types of mortgages for different types of borrowers. A mortgage is a loan used to purchase a property.
Which mortgage loan is best for me?
It’s hard to determine which home loan type is best for you, but it’s better to be informed about all of your options. Most people are not an expert at home Loans. At the Paul Mitchell Mortgage team, we are licensed professionals. We have a requirement to provide the best fiduciary advice for you. If you would like guidance on what home loan type is best for you. Please feel free to contact our mortgage team at (713) 714-0220 or send us an email.
We can point you in the right direction based on your current situation. We work with all types of credit situations and property types, so whatever your situation may be, we can help you.
A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. Therefore, the lender is subject to a greater risk of default. Banks like this type of conventional loan because it has less regulation and oversight, but borrowers may find that there are more restrictions on how funds can be used (somewhat constraining). Conventional loans tend to have lower rates than other types.
A fixed-rate mortgage (FRM) is a type of mortgage where the interest rate is fixed for the entire term of the loan. This means that the monthly payments will be the same for the entire loan term. Fixed-rate mortgages are the most popular type of mortgage, and they offer stability because you know exactly what your monthly payments will be.
A fixed-rate mortgage offers you the consistency that can help make it easier for you to set a budget. Your mortgage interest rate, and your total monthly payment of principal and interest, will stay the same for the entire term of the loan.
Who it’s For
A fixed-rate mortgage is for borrowers who want the stability of knowing what their monthly payments will be. It’s also a good choice for borrowers who want to avoid any surprises in their monthly payments.
The most common terms for a fixed-rate mortgage are 15 or 30 years.
- A credit score of at least 620
- Down payment of at least 3%
- Debt-to-income ratio (DTI) that’s less than 45%
- Likely have to pay private mortgage insurance (PMI) if you put down less than 20% (but it may be able to be canceled once you own a 20% stake in the home)
- Verification of your income, assets, liabilities, and down payment
An adjustable-rate mortgage (ARM) is a type of mortgage where the interest rate may change periodically, usually based on an index. This means that the monthly payments could also change. ARMs are a popular choice for borrowers who plan to stay in their home for a short period, or who want the lowest possible monthly payment at the beginning of the loan.
Who it’s For
An adjustable-rate mortgage might be a good choice for you if you want a lower initial interest rate. It can also be a good choice if you plan to sell your home within a few years.
ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.
- A minimum 5% down payment
- A minimum FICO® Score of 620
- A debt-to-income ratio (DTI) of no more than 50%.
- A maximum loan-to-value ratio (LTV) of 95%
A jumbo mortgage is a type of mortgage that is larger than the typical mortgage. A jumbo loan is considered jumbo if the amount of the mortgage exceeds loan-servicing limits set by Fannie Mae and Freddie Mac — currently $548,250 for a single-family home in all states (except Hawaii and Alaska and a few federally designated high-cost markets, where the limit is $822,375).
Jumbo mortgages are available for primary residences, second or vacation homes and investment properties, and are also available in a variety of terms, including fixed-rate and adjustable-rate loans. A jumbo loan will typically have a higher interest rate, stricter underwriting rules and require a larger down payment than a standard mortgage.
Who it’s For
They are common in high-cost areas, such as California and New York. Jumbo mortgages are available in both fixed-rate and adjustable-rate varieties.
Usually, a Jumbo Mortgage is offered in 30 years and 15 years fixed. Plus a 5 year / 6 Month ARM.
- A credit score of at least 660 (though, in many cases, a score of at least 700 will be required)
- A debt-to-income ratio of less than 45%
- Down payment of at least 10% to 20%
A balloon mortgage is a type of mortgage where the principal balance is due at the end of the loan term. This means that you will need to pay the entire principal balance (the amount you borrowed) plus any interest that has accrued at the end of the loan term.
Balloon loans come in a few different types: there are interest-only mortgages where borrowers make monthly interest payments and pay the entire balance at the end of the loan. Then there are loans with principal and interest payments that lead to a smaller lump-sum payment at the end. They can be used for everything from cars and mortgages to personal loans.
Who it’s For
Balloon mortgages are typically for borrowers who want a lower monthly payment in the beginning, but who also plan to sell or refinance their home before the loan term is up.
The most common terms for a balloon mortgage are 5, 7, or 10 years.
Unconventional mortgage loans
A non-conventional loan, or mortgage, is a type of loan that does not have to follow traditional mortgage loan requirements. Non-conventional loans sometimes refer to non-conforming loans. Conventional (or conforming) loans use wide sets of qualifications and eligibility, such as credit scores, loan amounts, and debt-to-income ratios. Also, most conventional loans require a 20 percent down payment minimum or private mortgage insurance payments.
Non-conventional home loans offer more flexible qualification requirements, often because the government has backed them. The Federal Housing Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture are all federal agencies that ensure these non-conventional loans to encourage homeownership.
FHA loans are one of the most popular types of mortgages for first-time homeowners. They offer a range of options and a variety of mortgage products. If you have a low credit score or a less than perfect financial history, this is your best bet for getting a home loan. These mortgage loans may be used to purchase a home, build a new one, or refinance an existing mortgage.
An FHA loan is typically cheaper than other types of loans because it offers lower down payment requirements and can provide more lenient terms with regard to credit scores and debt-to-income ratios. The Federal Housing Administration (FHA) guarantees FHA loans so buyers can borrow up to 97.5% of the purchase price,
Who it’s For
For many first-time homebuyers, an FHA loan is the perfect solution. And for those who have low credit scores or less than perfect financial histories.
30 year fixed, 15 years fixed, and 5/1 ARM.
- A credit score of at least 580 (3.5% down payment)
- A credit score of at least 500 (10% down payment)
- A debt-to-income ratio of less than 43%
- The home must be your primary residence and, in most cases, can’t be a condo
- Must pay PMI upfront and annually (if you’re putting less than 10% down)