Get to Know the Different Types of Mortgage Loans (2024)

FAQs

What are the three main types of mortgages? ›

When purchasing a house, there are three main types of mortgages to choose from: fixed-rate, conventional, and standard adjustable rate. All have different benefits and shortcomings that assist various homebuyer profiles.

Conventional mortgages are the most common type of mortgage. That said, conventional loans may have different requirements for a borrower's minimum credit score and debt-to-income ratio (DTI) than other loan options.

Fixed-Rate Mortgages

The standard type of mortgage is fixed-rate. With a fixed-rate mortgage, the interest rate stays the same for the entire term of the loan, as do the borrower's monthly payments toward the mortgage. A fixed-rate mortgage is also called a traditional mortgage.

These three essential factors — Credit, Capacity, and Collateral — play a pivotal role in determining your eligibility and terms for a mortgage. Let's delve into each of these C's to unravel the secrets to a successful mortgage application.

Also, for all types of QMs, the points and fees may not exceed the rule's specified points-and-fees caps. What Are the Different Types of QMs? There are four types of QMs – General, Temporary, Small Creditor, and Balloon-Payment.

Government-backed loan options, such as FHA, USDA and VA loans, are typically the easiest type of mortgage to get because they may have lower down payment and credit score requirements compared to conventional mortgage loans.

VA loans are often considered the best mortgages on the market, and for good reason. They offer lower rates than standard loans, and there is never any monthly mortgage insurance required.

In general, a secured loan, like a mortgage, will have a lower interest rate than an unsecured loan, like a standard personal loan, because it is less risky for the lender. This is due to the collateral the borrower puts up to get the loan.

What is the best choice for mortgage? ›

Fixed home loan interest rate is one where the rate does not fluctuate with changes in market forces. This rate remains steady throughout the tenor of the loan.

Look at the paper that says “Promissory Note” or “Note.” If you have an adjustable rate mortgage, your note may have the words “Adjustable Rate Note” and may include language similar to: “The interest rate I will pay will change in accordance with Section __ of this Note.”

Government-backed USDA and VA loans can allow you to buy a home with $0 down. The fact that these loans are backed by the federal government allows lenders to be more lenient with down payment requirements.

FHA loans require the borrower to live in the home as their primary residence, so they can't invest in or flip properties. With conventional loans, individuals can buy a variety of property types including private homes, investment properties and vacation houses.

An FHA loan may be a better option if you have a lower credit score, a higher DTI ratio, or less money saved for a down payment. On the other hand, a conventional loan may work better if your finances are sound and you can qualify for favorable loan terms.

Buying a vacation home or building a real estate portfolio can mean taking out multiple mortgages, sometimes while paying mortgage on your primary residence.