9 official types of home loans.

There are multiple different types of homes loan available to you. Selecting the right home loan will vary depending on the home’s use and your future plans. Let’s dive in!

What Is A Mortgage?

Mortgages are loans that are taken out by individuals to purchase a home. When taking out a mortgage, the borrower agrees to pay back the loan over a set period of time, usually a period of 15 or 30 years. Mortgages also typically involve interest, meaning that the borrower pays back more than the initial loan amount. In order to qualify for a mortgage, the borrower will usually need to provide proof of income, a credit score, and a down payment. Additionally, the borrower will need to be approved by the lender and may need to pay closing costs and other fees.

Note: All of these lending institutions offer these types of loans with multiple variations. Fannie Mae, Freddie Mac, HUD, FHA and VA.

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Here’s our list of the Different Types Home Loans

Fixed-Rate Loans

Fixed rate loans are the most popular types of home loans. A fixed rate loan is just that, the loans interest rate is fixed for a predetermined length of time. A fixed rate loan is a loan with a set interest rate that does not change throughout the life of the loan. The benefit of a fixed rate loan is that it allows the borrower to plan ahead and budget knowing exactly how much they will need to pay in each monthly installment.

Examples of fixed rate terms: 30 year, 25 year, 15 year, 10 year.

Many lenders today will accommodate you if you’re looking for a specific term. Let’s say you wanted a 23 year fixed rate loan. Although this is not common, several lenders will offer specific loan terms to suit their borrowers needs.

Adjustable Rate Mortgage (ARM)

The ARM is the second most popular type of home loans. An adjustable rate loan is a type of loan where the interest rate can change over time. Typically, the rate is tied to an index and changes whenever the index does. Adjustable rate loans often have lower starting interest rates than fixed rate loans, but may have risk associated with them, since the interest rate can increase.

Hybrid Adjustable Rate Mortgage

A hybrid loan is a type of loan that has characteristics of both fixed-rate and adjustable-rate mortgages. These types of home loans offer borrowers the benefits of both loan types, such as a lower interest rate and payments in the beginning, with the possibility of larger payments later on. Hybrid loans are typically appealing to those who plan on owning their home for a short period of time, such as five years or less. The initial low rate and payment makes it easier for borrowers to purchase the home without putting too much strain on their finances. These types of home loans are appealing to borrowers that plan on being in a home for a specific period of time.

Balloon Mortgage

These types of home loans, a balloon loan is a type of loan with a low regular monthly payment that requires a large portion of the principal balance to be paid off at the end of the loan term. Unlike a regular loan, a balloon loan does not fully amortize over its life: The borrower still owes a large amount of money at the end. The loans are usually short-term, with terms of 5 years or less.

Balloon loans can be offered by banks, credit unions, online lenders, and other financial institutions. They typically require a minimum credit score and income to qualify, and the interest rates can vary depending on the lender.

Interest Only Mortgage

Interest only (IO) mortgages are a very specific. These types of home loans come with terms you fully need to understand before applying. An example of a balloon mortgage is a home equity line of credit (HELOC).

You can find interest only loans from a variety of sources such as banks, credit unions, online lenders, and private lenders.

FHA Loans

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). This type of loan is often used by first-time home buyers because of its low down-payment requirements and flexible credit and income guidelines. FHA loans are popular among borrowers who may not be able to qualify for other types of mortgages.

VA Loans

A VA Loan is a loan issued by the U.S. Department of Veterans Affairs (VA) that helps eligible military personnel and veterans purchase homes or refinance existing mortgages. VA Loans are available to veterans, active duty service members, and their surviving spouses, among other eligibility requirements.

VA loans are offered by private lenders, such as banks and mortgage companies, and backed by the U.S. Department of Veterans Affairs. The VA guarantees a portion of the loan, enabling private lenders to offer more favorable terms to the borrower.

Hard Money Loans

A hard money loan is a type of financing secured by real estate and typically provided by private investors or lenders. It is short-term in nature and offers higher interest rates than traditional mortgages, making it a more expensive form of borrowing. Hard money loans are often used for quick access to funds for rehabilitation projects and other investments requiring fast turnaround times.

Hard money loans are typically offered by private lenders, such as investors, family and friends, hard money lenders and private financial institutions. These lenders can provide flexible loan terms, but they often charge higher interest rates than traditional lenders.

Non-QM Loans

A Non-QM mortgage (NON-QUALIFIED) is a loan that does not meet the standards of a qualified mortgage as defined by the Consumer Financial Protection Bureau. Non-QM mortgages typically feature higher interest rates and stricter terms than qualified mortgages and are often offered to borrowers who have unique financial situations such as self-employed professionals or those with a history of bad credit.

Non-QM lenders offer non-QM mortgages, which can include loans granted to borrowers who do not meet traditional requirements. There are several Non-QM lenders in the marketplace.

Q&A:

I’m often asked what are the 4 types of mortgage loans and what are the 3 types of mortgages? I’m not sure why folks think there are only 3 or 4, there are several. Are there types of home loans with no down payment? There was in the past but no longer. The 80/20 mortgage lead to the mortgage meltdown of 2008. Are there any types of loans for home improvements? Yes! There are several options from second mortgages to (Home Equity Lines of Credit) HELOC’s. Are there different types of mortgage loans for first-time buyers? Yes, FNMA and FHLMC off er HomeReady and HomePossile designed to help first time home buyers.

Conclusion:

There are many different types of home loans, all with different requirements and guidelines. Standard mortgage financing provides the best interest rates, but not always flexible terms. Alternative financing may offer flexible terms but higher interest rates.

Choosing the right types of home loans depends on your specific situation. Are you a first time homebuyer? Then a 30 fixed rate mortgage will offer you the most stability. Is this for a 2nd home or vacation home? Are you purchasing the home as an investment? Are you planning on renting out the home all year round or on a short term basis? Is this a starter home? How long do you plan on remaining in the home? The right types of homes loans for your specific needs takes understanding. Take your time choosing the product.