Types of Mortgages Available
Types of Mortgages Available
Types of Mortgage Loans
When exploring mortgage options, it’s important to understand the various types of loans available to you. Each type of loan offers different benefits and requirements. Here’s an overview of some popular mortgage types:
1. Conventional Loans
Conventional loans are typically defined as those with amounts that do not exceed the limits set by Fannie Mae or Freddie Mac.
Fannie Mae (Federal National Mortgage Association): Fannie Mae is a government-sponsored enterprise that purchases mortgages from lenders and resells them as securities on the secondary mortgage market. Fannie Mae evaluates applications based on credit scores, debt ratios, and employment history. As of 2006, the maximum loan amount for a Fannie Mae mortgage is $417,000.
Freddie Mac (Federal Home Loan Mortgage Corporation): Similar to Fannie Mae, Freddie Mac buys mortgages from lenders and sells them as securities. Freddie Mac also looks at credit ratings, debt ratios, and employment history when considering applications. The maximum loan amount is also $417,000 as of 2006.
2. Government-Guaranteed Loans
Government-backed loans often come with more lenient qualification requirements and lower down payment options.
FHA Loans (Federal Housing Administration): FHA loans are insured by the government, making them accessible to a wider range of borrowers. They typically feature lower down payment requirements and more flexible credit criteria. The maximum loan amount for FHA loans varies by location, so consult your mortgage broker for specifics in your area. FHA loans are particularly popular with first-time buyers and those purchasing multi-family properties. Mortgage insurance on FHA loans is consistent regardless of the loan-to-value ratio.
VA Loans (Veterans Affairs): VA loans offer benefits similar to FHA loans but are available to qualifying veterans, active-duty service members, and in some cases, the unmarried widows of veterans. VA loans do not require mortgage insurance. Instead, borrowers pay a one-time funding fee, which currently does not exceed 4% of the loan amount. Discuss loan limits and funding fees with your mortgage broker.
3. Non-Conforming / Jumbo Loans
Jumbo loans exceed the conforming loan limits set by Fannie Mae and Freddie Mac, which, as of the current limit, is $359,650 for a single-family home.
Jumbo Loans: These loans are necessary when borrowing amounts exceed the conforming limit. Jumbo loans typically have slightly higher interest rates compared to conforming loans, often about 0.5% higher. If you are considering a jumbo loan, discuss with your broker the possibility of splitting the loan into a first and second mortgage to potentially reduce the interest cost.
Working with a Mortgage Broker
A mortgage broker can help you navigate the various loan options and find the best rate and product for your financial situation. Consult with your broker to understand your options and determine the most suitable mortgage for your needs.
