Mortgage Types

There are many different types of mortgages available to first time homebuyers as well as experienced homebuyers. Some companies are considered mortgage lenders, like banks and other institutions that actually have money and finance the purchase of your home, and other companies are considered insurers of mortgages, like the Federal Housing Administration, Veterans Affairs, and Fannie Mae, that do not lend money but rather guarantee the loan on behalf of the buyers.

FHA Loan Mortgages

You’ve no doubt heard the term “FHA” in regards to mortgages, but you may not know what it actually is. The FHA is an acronym for Federal Housing Administration. The FHA mortgage option is popular among first time homebuyers, although the government program is not limited to a first time homebuyer. FHA helped create the long term amortizing loan, (any loan that is amortized over 30 years is considered long term) which helped increase the number of people who were able to own their own home. In 1997, a full 76% of all FHA loans were given to first time homebuyers. The FHA specializes in helping first time homebuyers, minority borrowers, people who have less than perfect credit, and the increasingly growing group of people who have little or no money saved to put “down” on the purchase of a home. It’s important to note that the FHA is not actually a mortgage lending institution. Instead, they are an insurer of mortgages. To qualify for a mortgage under the FHA program, you must still be able to obtain financing from a bank or mortgage lender.

Conventional Loan Mortgages

About 80 percent of all residential mortgages that originate within the United States are conventional loans. A conventional mortgage loan is when the bank holds the legal title to the property the money is being borrowed to purchase until the payment has been made in full. Typically, a conventional mortgage loan will require a down payment to obtain the financing, equivalent to 20% of the financed amount. Credit scores and personal credit histories, income and your existing debt play a large role in whether or not you’ll be able to obtain financing for a home using conventional mortgage terms.

VA Loan Mortgages

In 1944, Congress passed the Serviceman’s Readjustment Act, otherwise known as the GI Bill of Rights. The VA is similar to the FHA in that it is not a lender of money, but it guarantees loans that are granted by banks and conventional lending institutions, as long as they participate in the VA program. The program is intended to help those on active duty as well as veterans purchase a home.

Jumbo Loan Mortgages

In January, a “conforming loan limit” is set. The limit is the largest amount of loan that can be purchased by Freddie Mac or Fannie Mae to reinvest into new mortgages. In January 2006, the conforming loan limit on a single family home was set at $417,000. Any mortgage amount that is higher than the conforming limit is considered a Jumbo Loan. Jumbo Loans receive slightly higher interest rates, but make it possible for people to own the home of their dreams.