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Common Mortgage Loan Types
Conventional Mortgage. This is the most commonly used type and usually has the best rates. You’ll typically need at least 10% for a down payment and good credit. Can be for 15 or 30 years or “interest only” where you are not paying any principal in your payment.
“Interest only” loans have a bit lower payment but you don’t pay off any of the loan balance when you make your regular payment.
Mortgage Insurance. Alright, this isn’t a mortgage type, but you need to know about it! If you put less than 20% down on a home, mortgage insurance protects your lender in case you quit making payments. The cost varies by type of loan so ask your Mortgage Professional about it with every loan you discuss. Mortgage insurance can now be a tax write-off depending on your income level, due to a recent change in the tax laws. Also, once you believe you have at least 20% equity, you should contact your lender to find out about getting rid of Mortgage Insurance, also known as PMI.
FHA Mortgage. Thought of as the first time home loan program but actually available to anyone. The down payment is only 3.5% and is more forgiving of lower credit scores. The interest rates are not as attractive as Conventional, but qualifying for the loan isn’t as tough either. Here is a great in-depth look at The Top 5 things you should know about FHA home loans from our friends at Homeownership University.
FHA Mortgages are what most people consider to be “first time buyer loans”. Not all lenders can offer them.
VA Loan. Zero down payment loan, but you must be a veteran. We discussed it fully in Does Zero Down Really Exist.
USDA Rural Housing Loan. Zero down payment loan explained in Does Zero Down Really Exist. This USDA Mortgage Loan can only be used in designated areas & towns, but their definition of rural may be more flexible than you think.
Adjustable Rate Mortgage (ARM). These have rates that start out lower than the current rates, but can change after one, two, or five years – usually upward!
Adjustable rate loans got many home owners into trouble when their rates went up faster than expected.
Your bank, credit union, or Mortgage Professional may have a few additional local loans as well so be sure to ask.
Thinking of buying a home in the Portland, Oregon area? Checkout our First Time Home Buying Classes!
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