When you decide that it is time to own your own home, you will find that in addition to the basic questions of what and where, there is an alphabet soup of terminology to contend with related to the mortgage loan itself. Before you move ahead, there are some terms that you should know to help the home buying process make more sense.
Types of Mortgage Loans
Mortgages fall into a few general categories, with different program rules depending on either who is issuing the loan or the organization that is guaranteeing the loan.
With a conventional loan, you are applying for a mortgage for a specific amount from a financial institution (often the credit union or bank with which you already have a relationship). You will be purchasing your own insurance, and no third party will be backing your loan. The institution will decide whether you are a good credit risk, based on their own criteria.
The Federal Housing Administration (FHA) insures loans for individuals with lower credit scores, or limited means. There are specific requirements for both the loan applicant and the properties that can be purchased; only FHA-approved lenders can make these loans. FHA lenders are usually both knowledgeable and helpful in clarifying who qualifies for an FHA loan. The loans are also insured by the FHA.
The Veterans Administration (VA) loans are for military service members and veterans. The loans carry no down payment requirements, and are insured by the VA, so borrowers do not have to carry their own mortgage insurance. Like FHA loans, the institution must be approved as a lender by the VA.
The United States Department of Agriculture (USDA) offers a mortgage loan program for rural and some suburban areas. There are quite a few restrictions on the type, amount, and use of the property that the USDA loan program approves. These loans often (but not always) require no down payment.
Be sure to inquire about your qualification for each of these loan types. Sometimes the qualification may be attached to the property itself, if it is in an area designated for development or redevelopment by one of the federal agencies. Always ask! Our
mortgage experts will be only too happy to check for you.
Expert Advice to Understand Mortgage Programs
This overview provides just the basics of each program. InTouch has mortgage loan officers that can help you find the program that best meets your needs.
Meet our Mortgage Experts
Rating the Interest Rates
When you are shopping for a mortgage, the rate is all the rage! But which rate you get depends somewhat on which type of mortgage you decide on. You have some general choices to make, depending on your goals.
The fixed-rate mortgage is just what it sounds like: you agree to a specific loan rate with your mortgage lender at the outset, and pay the same interest rate throughout the term of the loan. The term of your mortgage is fixed, as well, so you know from the start just what you will pay, and for how long.
An adjustable rate mortgage (ARM) loan rate will vary, depending on changes to the prime rate, at designated intervals over the life of your mortgage. The term of the loan is fixed, but the initial rate (usually low, to entice mortgage shoppers) is only locked in for a given span of time.
Balloon mortgages are tricky creatures. You may begin with a lower rate than other types, but beware! After the initial period of, say five years, the entire balance of the loan comes due. At that time, assuming you wish to remain in the home, you will be subject to the then-current mortgage rates.
The rate of interest you pay has a big impact on the total amount you repay over the lifetime of your mortgage loan.
Use our calculators to compare terms, rates and interest rate types to see
which combination provides the best deal.
InTouch Mortgage Calculators
Coming to Terms with Mortgage Loan Terms
The other major driver of your total repayment amount comes down to the term, or length in years, of the loan. There are some customary terms for loans.
The most common, customary, and traditional mortgage is the 30-year mortgage. The term is long, so your payments are spread out, and the monthly payment is lower as a result.
Fifteen-year mortgages are somewhat less common, if only because the payments are a bit higher, since the term is halved. If you are planning to stay in your new home for the long term and you can afford the higher payment, the 15-year mortgage does offer a substantial savings in the amount of interest you won’t pay.
You may see 10- or 20-year mortgages offered, but those are often for mortgage refinancing. If the terms truly appeal to you, for a specific reason, however, do not hesitate to ask. Your mortgage expert can assist you in determining which loan term works most to your advantage.
Looking for a mortgage may begin as a somewhat confusing process, but don’t sweat it! InTouch is here to ensure that you understand the terminology, the process, and the product of this important life investment.