Different Types Of Real Estate Home Loans

Getting the right type of real estate home loan is an important part of the home buying process. Below is some basic information regarding the types of real estate home loans that are common in the market today.

Fixed-Rate Mortgages Fixed rate mortgages are mortgages where the interest rate stays the same for the entire term of the loan. The advantage to a fixed rate mortgage is that if you lock a relatively low rate, your payment won’t go up when rates do.

Adjustable-Rate Mortgages With an adjustable rate mortgage (ARM), the interest rate of the loan can change throughout the term of the loan. This is one of the riskiest loans, especially for buyers on a fixed income, because after a certain period of time, your monthly payments can dramatically increase. It's even speculated that ARMs caused the 2008 financial crash. Fortunately, ARMs are now a lot different (and safer) than they were back then, but they are still pretty risky. 

Hybrid Loans A hybrid loan combines a fixed period along with an adjustable component. Usually these loans are fixed for a period of time and then the loan becomes adjustable where it is dependent on current rates.

FHA Loans An FHA loan is a loan in the United States that is insured by the Federal Housing Administration.

  • 580+ credit score
  • 3.5% down payment
 
VA Loans A VA loan is a loan in the United States guaranteed by the Veterans Administration. The loan may be issued by qualified lenders. The VA was designed to offer long-term financing to American Veterans or to their surviving spouses.
  • 620 credit score
  • no down payment 
 
USDA Loans A USDA loan is guaranteed by the United States Department of Agriculture so that borrowers can receive 100% financing to eligible borrowers if they reside in rural areas. 
  • 600 credit score
  • no down payment
  • possible closing costs can be included if value comes in higher 
 
Conventional Loan A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate and you can use it to buy a primary residence, second home, or rental property.
  • 620 credit score
  • as little as 3-5% down 
 
Balloon Loans A balloon loan is a real estate loan where there is a lump sum due at the end of the loan. This normally encourages an individual to refinance prior to the end of the term of the loan.
 
Jumbo Real Estate Loans A jumbo loan is any residential or commercial loan exceeding the guidelines of Fannie Mae and Freddie Mac.

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