Types of Mortgages

There are many different financing options and choices in mortgage loans for today's homebuyer. You may want to research each one and speak with your Lender before deciding which one best meets your specific goals and needs.

Conventional Mortgage Loan - those that are not backed by an agency of the federal government but offered by a traditional private lender. There are many different types of conventional mortgages with varied terms, they may be a bit harder to qualify for but generally are less paperwork than government-backed loans.

FHA or VA mortgage loans- those in which the federal government participates either by insuring the loan to protect the lender (FHA-insured loans) or by guaranteeing that the loan will be repaid (VA-guaranteed mortgage loans). These loans typically have lower qualifying ratios than traditional conventional loans and require less of a down payment.

Fixed Rate Mortgage Loan - probably the most common of mortgages, this one the interest rate does not change throughout the life of the loan.

Adjustable Rate Mortgage (ARM) - one in which the interest rate changes according to changes in a pre-determined index therefore your monthly payment may vary month to month. To ease concern of borrowers of getting a dramatic increase in rate ARMs are structured with caps (ceilings) that limit both the annual adjustment and the total adjustment during the lifetime of the loan. For example, annual increases could be limited to perhaps 1 or 2 percent interest, and the lifetime loan ceiling might be no higher than perhaps 5 or 6 percent above the original rate. There may similarly be a floor.

Balloon Mortgage- this mortgage provided for installment payments that are not enough to pay off the principal and interest over the term of the mortgage, so the final payment (balloon payment) is substantially larger than previous payments to satisfy the remaining balance of the loan. These loans are most attractive to buyers who do not plan to own the house for a long period of time.

Private Mortgage Insurance (PMI) - Insurance coverage required in high loan-to-value ratio conventional loans to protect the lender in case the borrower defaults in loan payment. Typically required when the loan-to-value percentage is greater than 80%.