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Types Of Mortgage Loans

3/2/2020

27 Comments

 
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A huge aspect of purchasing a home is finding the right mortgage loan for you. There are several different types of mortgages that each have their own advantages and disadvantages. You should always speak with a mortgage lender to review what your best options would be. Below is a brief outline of some of the most common loans you may want to consider. While reviewing mortgage loans might not seem exciting on the surface, just keep in mind that the right mortgage loan can help save you money and planning how to spend that extra money is definitely exciting.
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Conventional Loans

These loans are most often conforming, meaning they stay within the federal limits set by Freddie Mac and Fannie Mae (government owned mortgage purchasers). In the Shenandoah Valley the cap is $510,400. With these loans, if you put down less than 20% of the purchase price for the home, you will pay a Private Mortgage Insurance premium each month until you reach 20% equity in your home. 

Fixed Rate Loans

This is the most common mortgage loan, making up 75% of all home loans. These loans come in 15, 20 and 30 year terms. While the 30 year term is the most popular, the 15 year term will build equity faster, in part due to a lower interest rate. The interest rate stays fixed so the monthly payments remain the same for the duration of the loan; this is great for budgeting and there are no surprises down the road if you plan to stay in your house for several years. The down-side is that you could end up paying more in interest than you would with a different kind of loan.

Adjustable Rate Mortgage Loans

With ARM loans, there is an introductory period when the interest rate is fixed (one month to 10 years) after which the loan interest rate can fluctuate according to the index they are tied to. ARM loans can be attractive to buyers who don’t plan to stay in their house long-term because their initial rates are typically lower than the fixed rate loans but they come with the risk of a much higher interest rate after the fixed period. 
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Government Agency Backed Loans

Unlike conventional loans, these loans have more restrictions; investment properties and second homes are typically not eligible. However, these loans offer a much lower down payment and typically lower interest rates.

VHDA Loans

Virginia Housing Development Authority offers a variety of loans designed to meet the needs of Virginia's homebuyers, including Conventional 30 Year Fixed (Fannie Mae No MI, Fannie Mae Reduced MI), plus FHA, VA (Veterans Affairs), and RHS (Rural Housing Services) loans which are listed below. VHDA also offers a down payment assistance grant, closing cost assistance, and mortgage credit certificates. Something to keep in mind is that most VHDA loans are only for first time homebuyers and there is a maximum income and loan limit by region.

FHA Loans

Federal Housing Administration Loans come in 15 or 30 year fixed rates and offer a low down payment requirement (can be as low as 3.5%), plus the ability to use a financial gift or inheritance for the down payment. Lower credit score and debt-to-ratio requirements are also advantages to FHA loans, particularly for first time homebuyers. The biggest drawback is that FHA borrowers must pay an upfront mortgage insurance fee of 1.75% of the total loan amount, as well as a monthly premium regardless of down payment size.

USDA/ RHS Loans

 United States Department of Agriculture offers Rural Housing Service Loans. They can be a good option if you wish to purchase a single family home that is located in an eligible, rural area. This loan offers a no down payment option and tends to have lower interest rates than a conventional mortgage. The disadvantages to USDA loans are that you will have to pay mortgage insurance premiums and there is an income limit (for Harrisonburg Metro area- not the city itself, which is not eligible- this is $86,850 for a 4 person or less household) as well as a loan limit ($265,400 for Rockingham County).

VA Loans

 If you've served in the United States military, you may qualify for a Veterans Affairs loan. A VA loan doesn’t require a down payment and there are no mortgage insurance requirements. There is also no minimum credit score requirement and interest rates tend to be lower. Because these loans come with so many benefits, there are a few restrictions; the property in question must be your primary residence, and it must meet “minimum property requirements" (not a fixer upper) which can prolong the appraisal process. There is also a funding fee associated with the loan. ​
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There are several other, lesser-known mortgage loans (such as Balloon, Bridge, Jumbo, Interest-Only, Rental Property, etc) that may warrant some additional research as you determine the best loan for your situation. While one mortgage type may work for your friend or relative, it may not be the best fit for you which is why you should work with your lender and review the terms of any loan carefully.  ​
Sources:
https://www.consumerfinance.gov/consumer-tools/mortgages/answers/basics/

https://www.fmbankva.com/fixed-rate-loans/#tab-id-1
https://www.mortgagecalculator.org/helpful-advice/types-of-mortgages.php
https://www.bankrate.com/finance/mortgages/5-basic-types-of-mortgage-loans-1.aspx
https://www.realtor.com/advice/finance/types-of-mortgages/
https://www.vhda.com/Homebuyers/VHDAHomeLoans/Pages/VHDAHomeLoans.aspx
https://www.rd.usda.gov/files/RD-GRHLimitMap.pdf
https://www.bankrate.com/finance/mortgages/virginia-jumbo-loan-limits-by-county.aspx

https://www.fhfa.gov/DataTools/Downloads/Documents/Conforming-Loan-Limits/FullCountyLoanLimitList2020_HERA-BASED_FINAL_FLAT.pdf
https://www.investopedia.com/terms/r/rhsloan.asp

27 Comments
Zachary Tomlinson link
4/24/2020 05:15:47 am

Thanks for helping me learn more about mortgage loans. The idea of having a fixed-rate loan that would last for 15 years isn't bad at all. This way, you'll be able to adjust one's budget into paying for that home with a fixed rate. My brother is interested in purchasing a home this year and I believe this information can help him.

Reply
Fay link
6/15/2020 12:22:47 pm

Wow, I had no idea that fixed-rate loans make up about 75% of all home loans and that they are some of the most common types. The other day I was talking to my youngest brother and he said that he would like to find a residential loan for some investments he has. He is really smart and I know he will find exactly what he needs, so I will share this article with him so he can also become more informed about it.

Reply
Shaylee Packer link
9/4/2020 08:59:18 am

My husband and I are looking to purchase our first home, and I didn't realize there were so many different home loan options. We fortunately do have the 20% we can put down on a home, so the conventional fixed rate loan would probably be the best for us. I will have to share this article with my husband, and see what he thinks.

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Adam Golightly link
10/20/2020 04:14:51 pm

My brother really wants to build a family with his new wife. He wants to make sure that he has the right house with enough rooms. Getting some help from a professional to get a loan for it could be really useful. I'll be sure to tell him about how he can get a fixed-rate loan that will allow him to build equity faster within 15 years with a stable instant loan.

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10/27/2020 02:48:18 am

nice post

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Kristofer Van Wagner link
11/17/2020 10:56:48 pm

I was never aware that there are different type of loans for us to choose from when we are planning to take up a mortgage loan. The other day my brother mentioned he needed to apply for mortgage loan. I will ask him to look into which type is suitable for his situation.

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Mister Loans link
12/8/2020 06:14:54 am

Yet another fantastic value based article based on research, and I think all the tips are the result of learning through experience, that's why they are so much valuable for the readers.

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Rebecca Gardner link
12/8/2020 03:09:38 pm

Thanks for explaining that fixed-rate mortgages are the most common option and come in several different term options. My brother and his wife want to start doing research so they can prepare to get a loan and buy their first home within the first few months of next year. I'll have to share this info so they can see if a fixed-rate mortgage would be a good option in their situation!

Reply
Fred Gibbons link
2/1/2021 11:57:49 am

It's awesome that you elaborate on how a mortgage loan can help you buy a home. My wife and I want to become homeowners this year, so we are considering getting a mortgage loan. I'm going to search for a reputable mortgage lender in the area that we can use.

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2/4/2021 05:16:48 am

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Braden Bills link
2/18/2021 10:47:59 am

I need to get a home loan, but I'm not sure how to get one. It makes sense that I might want to get a good lender. That way, I can ensure that I have home rates that I can easily pay for.

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Taylor Hicken link
4/8/2021 11:33:25 pm

I appreciated it when you shared that it is crucial to talk to a mortgage lender to decide on the best loan that suits your situation. My sister just mentioned the other day that she is thinking of buying another house for her family since she wants a bigger home to accommodate her family. I will suggest to her looking for the right home loan by speaking to her mortgage lender.

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6/1/2021 08:51:16 am

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