Types of mortgages and different home loan types

Mortgage Loan Types

There are many different home loans types of mortgages available to prospective home buyers. Qualifying for a mortgage of any type requires specific conditions to be met. In general, those in a good financial position with a strong credit score, will be able to get mortgages with more favorable terms and interest rates. Those with very poor credit and not able to come up with a substantial down payment, will have a difficult time qualifying for any type of mortgage.

Mortgages can be categorized in to two basic categories. A fixed rate mortgage is a mortgage where the interest rat remains the same over the life of the loan. An adjustable rate mortgage, also referred to as an ARM, is a mortgage that starts out with a low interest rate for a period of time and then adjusts up and down over time based on the general interest environment.

An interest only mortgage is a special mortgage that allows you to pay only the interest on a loan in the early stages of the loan and then pay the principal balance at the end of the loan. While this can be a large sum, most people will refinance the principal amount before it becomes due and continue to make monthly payments. The advantage of this type of loan is that it makes it easy to get in to a more expensive home because the monthly payments will be less. The negative aspect to this loan is that you do not build any equity in your home as you are only paying interest and not principal. This loan can be good if your home appreciates during the term of the loan.

Interest represents the major portion of a home mortgage in the early years. You may pay $1000 a month and only $50 goes toward reducing the principal. With an interest only loan, nothing goes toward the principal. The interest is high in the beginning but gradually reduces over time. You do have the advantage of deducting the interest on your tax return, but that is offset by the minimal amount of equity you can accumulate.

Another type of loan is a balloon mortgage. In this mortgage, you start out paying a lower interest rate and a low monthly payment. After an agreed upon time, the full amount of the remaining loan becomes due in one large lump sum. That is the balloon payment. It can be substantial and most people will take advantage of refinancing that sum before it becomes due.

Veterans or VA loans are preferential mortgage loans available to Veterans or active duty members of the armed forces. There are less strict requirements to qualify for a VA loan. No down payment is required and income and credit are not as important as with a conventional loan. If you qualify, you may be able to get 100% financing and do not have to buy expensive mortgage insurance.

FHA loans are government backed loans that allow first time home buyers to put only 3% down. They also allow most closing costs to be included in the mortgage. They work well for those with a good credit score, but a lack of cash for a substantial down payment.

Find suitable mortgage loan types for your real estate needs. Most home borrower falls in one of these categories of loan bur sometime there may be more complex mortgage type exists not mentioned here