What Is a Mortgage Loan?
A mortgage loan is a type of loan specifically designed for purchasing a property or refinancing an existing one. It is a legal agreement between the borrower (you) and the lender, where the lender provides funds to the borrower in exchange for a lien on the property. This means the lender can take the property if the borrower fails to pay.
Different Mortgage Loan Types
Now that we’ve covered the basics, let’s dive into the mortgage loan types you can choose from when financing a home purchase or refinancing an existing mortgage. Here are some of the most popular types of loan mortgage:
1. Conventional Loans
These are not insured by the government and are offered by private lenders. The advantage of this type of loans, is the flexibility in terms, allowing borrowers to choose the loan duration and interest rate structure that best suits their financial situation. To qualify, a borrower needs a good credit score.
2. FHA Loans
The Federal Housing Administration insures FHA loans. These are more flexible in their credit requirements than conventional loans. Which is why they are accessible to a wider range of borrowers. These have significantly lower down payment than the typical 20% required for conventional loans. In fact, it can even be as low as 3.5% of the purchase price. For FHA loans, borrowers are required to pay mortgage insurance premiums while the loan is existing.
3. VA Loans
These are offered exclusively to active-duty military personnel, veterans, and eligible surviving spouses. These loans offer several benefits. A down payment is not required, lower interest rates are available and there is no private mortgage insurance. However, specific military service requirements set by the Department of Veterans Affairs should be met by an applicant in order to qualify.
4. USDA Loans
USDA loans are mortgages backed by the U.S. Department of Agriculture and are designed to help borrowers purchase homes in rural and suburban areas. These loans have no down payment requirements and with lower interest rates. To qualify for a USDA loan, your property must be in a designated rural area as defined by the USDA, and you must meet certain income requirements.
5. Jumbo Loans
Jumbo loans exceed Freddie Mac and Fannie Mae loan limits. These are two government-sponsored enterprises that buy and sell mortgages in the secondary market. These loans are suitable for borrowers looking to finance high-value properties. Jumbo loans typically have stricter eligibility requirements. One will need a lower debt-to-income ratio and a higher credit score.
The Bottom Line
You can achieve your mortgage and refinancing goals if you choose the right mortgage. Let’s do a quick rundown of the most popular mortgage loan types we covered:
- Conventional loans offer flexibility but require a good credit score and a stable income.
- FHA loans are accessible with lower credit scores and down payments, but mortgage insurance is required.
- VA loans are exclusively for military personnel and offer benefits like no down payment and lower interest rates.
- USDA loans are for purchasing homes in rural areas and offer low-interest rates with no down payment.
- Jumbo loans are for financing high-value properties, but they have stricter eligibility requirements.
Ready to Take the Next Step Toward Homeownership?
Now that we’ve covered the different types of mortgage loan, deciding on the right mortgage loan is crucial, and it’s always a great idea to seek expert advice. If you’re looking for Boulder mortgage lenders, our team at Cedar Home Loans can help! Let us know what you are looking for and we’ll find the best option that will fit your needs. Contact us today!
