THE TYPES OF MORTGAGE LOANS IN THE US IN 2018
More and more Americans are aspiring for a house today. With many Mortgage loans schemes which are privately or publically funded this dream is converting into reality. Thus more and more Americans are able to realize the dream of their own house.
There are many schemes offered by the different departments of the government but the layman is unaware of these schemes. Thus he is not able to take full advantage of them. As they say ‘Knowledge is Power’. So if an individual becomes aware of the different types of mortgage loans available then he can surely go for a home loan and realize his dream.
The most common questions asked by borrowers in the United States are:
- What are the different mortgage loans available for home buyers in the US in 2018?
- And what are the pros and cons of each of them?
In this write up we offer some basic information about the different types of mortgage loans available in the USA in 2018
With the skyrocketing prices of real estate in the USA, more and more people are taking mortgage loans. There are many different types and categories of mortgage loans. The government has also pitched in helping lenders buy loans especially if they are retired veteran or rural populace.
As far as home loans are concerned, everyone needs a home and thus a home loan. The government and its housing agencies are doing their best to provide the best and cheapest home loans to all the citizens of the United States of America.
There are many types of mortgage loans and there is a loan for every class and category of citizen. Thus as the government is pushing for housing for all. These loans are very beneficial and crucial for all those citizens and families who do not have their own homes. Thus they can realize their dream by taking a mortgage loan and own their home house
TYPES OF MORTGAGE LOANS IN THE USA IN 2018
1: Fixed vs. Adjustable Rate
In the first option, there are 2 different types of loans based on the interest rate which can be fixed or adjustable. Most of the loans are in these two categories or they are a combination of the two and are called hybrid loans.
Below is the explanation of the two:
With a fixed rate mortgage loan you will have the same interest for the complete repayment term. Thus with this type, the interest will be fixed and so will the monthly instalment every month of every year. This also applies to long-term financing options like a long-term 30 years fixed interest rate loan.
The other type of loan is the adjustable rate mortgage loan or ARM’s which have an interest rate which will change and adjust over time, from time to time. For some time the rate will be fixed with these loans and after that, the rate will keep changing year after year. This is thus also known as a hybrid product. In this variety, the starting interest rate is fixed and after a period of time the interest rate starts to fluctuate and will switch over to an adjustable rate.
2: Government-Insured vs. Conventional Loans
You can choose between a government insured home loans like an FHA or VA or a conventional regular type of loan.
Below are the differences between the two:
With a conventional home loan, the loan is not insured or guaranteed by the Federal Government. This makes it different from FHA, VA, and USDA which are government-backed mortgage loan types.
These are the Government-insured home loans types:
The FHA or the Federal Housing Administration mortgage insurance program is managed by HUD or the Department of Housing and Urban Development. This itself is a Department of the federal government.
These FHA loans are for all types of borrowers and not just for the first time borrowers. In this type, the federal government ensures the lender against any loss which incurs because of a payment default.
The advantage of this type is that your down payment becomes very less and goes as low as 3.5 per cent. The disadvantage is that you will have to bear the expenditure of mortgage insurance which will increase your monthly payments.
This is called the VA loan or the Veterans loan which is especially for military service members and their families. It is offered by the U.S Department of Veteran Affairs. Just like the FHA loan program, this type of mortgage is insured by the federal government. The best part of this program is that the borrowers have the choice of receiving 100 per cent financing for their home purchase thus they can take a loan without any down payment.
USDA / RHS Loans
This program is especially for rural borrowers. The United States Department of Agriculture or USDA provides this loan to all rural borrowers who meet some certain income requirements. The management of this program is in the hands of RHS or Rural Housing Service. This is itself is a part of the Department of Agriculture.
This type of mortgage loan is especially for rural residents. Especially those who have a modest, steady or low income and yet who are not able to get proper housing through conventional financing sources.
3: Jumbo vs. Conforming Loan
The next distinction is based on the size of the loan. You might fall into the jumbo or the conforming category depending on the amount of loan you want to borrow.
Below is the difference between the 2 types of mortgages based on the amount borrowed:
This type of loan meets the underwriting guidelines of Freddie Mac or Fannie Mae, especially where size is concerned. Both Freddie and Fannie are government controlled corporations. These purchase and sell mortgage-backed securities or MBS.
To make it simple they purchase loans from lenders who generate them and they sell the loans to investors through Wall Street. This type of loans conforms to pre-established criteria and falls within the maximum loan size limit.
This type of mortgage loan goes beyond the conforming loan limits set by Freddie Mac and Fannie Mae. There is a higher risk for the lender in this kind of mortgage mainly because of its size. Thus it is imperative that Jumbo borrowers have large down payments and excellent credit ratings as compared to conforming loans. Also with Jumbo loans, the interest rates are higher than conforming loans.
Thus by understanding which category a lender comes under he can definitely go for the appropriate scheme. And thus enjoy the benefits of the particular scheme. There is a housing scheme for every type of individual from every stratum of society. The government is leaving no stone unturned in ensuring their vision of housing for all.
Thus if you are planning to take a housing loan this is the best time for it. You can choose your category and go for the type of mortgage loan which suits your needs and pocket. Thus realizing your dream of a house of your own.