If you’re planning to purchase a new home, it’s important to understand the available types of loans. Several mortgage loan products may be suitable for buyers in various circumstances. This article will discuss the 5 most common types of mortgages, who they are most appropriate for, and their advantages and disadvantages.
A conventional loan is what most people think of when purchasing a house. This type of loan is not backed by the federal government and may be conforming or non-conforming.
Conforming loans must comply with Federal Housing Finance Agency (FHFA) standards for credit, debt, and loan size limits. Non-conforming loans do not comply with the standards and may be used by people purchasing very expensive properties or who have low credit scores.
The benefits of conventional loans include:
Under conventional loans, sellers may also contribute to closing costs.
The cons of conventional loans include:
To be approved for a conventional loan, you will need to provide adequate documentation to the lender.
A jumbo loan is used to purchase a significantly expensive home — typically above $650,000, exceeding FHFA borrowing limits.
The pros of a jumbo loan include:
Jumbo loans are predominant in cities with high housing costs.
The disadvantages of jumbo loans include:
People seeking jumbo loans will need to provide considerable documentation.
Florida FHA loans are excellent for borrowers without money for a large down payment or credit issues. These loans are available to individuals with a credit score of 580 and who can put down 3.5%. Individuals with a credit score of 500 who can put down 10% may also qualify.
The advantages of Florida FHA loans include:
FHA loans are a great option for Florida first-time home buyers.
The disadvantages of FHA loans include:
Despite the disadvantages, FHA loans remain a great option for those with poor credit or little money to put down.
A fixed mortgage is designed for people who plan to stay in the home for a long period — at least 5 to 7 years. These mortgages usually have repayment terms between 15 and 30 years. When most people think of a traditional mortgage loan, they are thinking about a fixed-rate mortgage.
The benefits of a fixed-rate mortgage include:
A fixed-rate mortgage can provide borrowers with a certain amount to pay each month, allowing them to properly plan a regular budget.
The cons of a fixed-rate mortgage include:
Despite the disadvantages, a fixed-rate mortgage can be helpful for those who want certainty in their monthly mortgage payments.
A VA loan is available to members of the U.S. military (active duty and veterans). These types of loans have several different advantages for those who qualify for them, and their terms may be better than what you can find using a conventional loan.
The benefits of VA loans include:
Those who qualify for VA loans can benefit from their significant advantages.
There aren’t any real downsides to the VA loan, but the house you buy must be your primary residential property. Its low barriers to entry make this a great option for those who qualify.
Disclaimer: The opinions expressed above are meant for illustrative purposes only. For specific questions about mortgages or your lending needs, please contact Arco Financial. www.arcofinancial.com. Some restrictions apply. NMLS # 2149692