Types of Mortgages

Not too many years ago, there were only a very few types of loans available to the home buyer. The last couple of decades, however, have seen banks stepping up and offering some exciting new loan types to consumers, which enable more and more people to get the home loan and mortgage that will better suit their needs for a custom loan and financial position. Here are some of the most common loan offerings and what they mean. Not all lenders working with Johnson Mortgage will have these products, so if there is a certain one you are looking for, make sure to ask up front for it.

• Fixed-Rate/Conventional - Fixed rate loans are the "original" loan types, simple straightforward and direct. The bank gives you a certain amount of money at a certain interest rate for a certain period of time. The interest rate does not change and there are usually no pre-payment penalties. Fixed rate loans used to be nearly exclusively on a 30-year term, but now programs are being offered at 10, 15, 20, 40, or even 50 year terms. Understand that the longer your mortgage is, the more you will end up paying the bank in interest for it.
• FHA Mortgages - FHA mortgages are loans that are insured by the government using Private Mortgage Insurance (PMI) that is added to the loan. First time home buyers are usually the ones who are eligible for and use this type of loan. Down payment amounts may be minimal and your FICO score is not as relevant in determining whether or not you will get the loan.
• VA Mortgages - VA mortgages are government loans that are available only to active-duty and veteran service members of the U.S. Military. How much you are eligible for with a VA loan is your type and length of service, income amount and discharge. The benefit of a VA loan is the lack of need for a down payment.
• Adjustable-Rate - Adjustable Rate Mortgages are those whose interest rate will, at some point, start to fluctuate with market indicators either upward or downward, changing the mortgage payment amount right along with it. Sometimes these loans remain at a fixed rate for a period of time before they will begin to adjust, and then they will adjust annually or biannually depending on the terms of the loan.
• Combo Mortgages - Also sometimes referred to as an 80/20 loan, this is a way of obtaining a home by getting two different mortgages. A combo mortgage is often used if you do not have sufficient credit to convince a lender to lend you 100% of the price of a home, but they would be willing to give you a loan for 70% or more. If you can convince a second lender to give you a loan for the remaining amount due on the house, then you will have what you need to buy the house, two mortgages and the banks will be minimizing their risk thanks to you having effectively "split" the loan.
• Reverse Mortgages - These types of mortgages are only available to senior citizens and they are a way for a senior to receive payments out of their home's equity rather than continuing to make payments (if any) on the home. The way this works is if a senior owes a home valued at $200,000 outright, then the bank will begin making regular payments to the owner every month...taking away from the equity of the home. This continues for as long as the owner wishes, but once the equity limit has been reached or the payments stop (such as after the owner dies), the bank now owns a percentage of (or all of) the home again when the time comes to sell it later.

Once you know you want to go through with the mortgage process, make sure you know the steps in the mortgage process you will be going through so you are not suprised and you know what to expect.