For potential homeowners who want to purchase a residential property without paying its full value upfront, the best option is ‘mortgage.’ When you are thinking of using the mortgage mechanism for buying a home, it is important that you should compare the different types of mortgages available to home buyers. Such a comparison will enable you to ascertain which kind of mortgage is best suitable to your needs.
Before you compare mortgages of different types, you should be fully aware of what mortgage actually means. Simply speaking, mortgage is the method which allows people to purchase property – residential or commercial – if they do not have enough cash to pay the full value of the property. When you use the mortgage method to buy a home, you basically undergo a negotiation with a bank which buys the home for you. In such a situation, mortgage is the monthly payments that you make to the bank towards the repayment of your loan.
There are different types of mortgages which can be availed by potential homeowners. These can be listed as follows:
- Fixed-rate or adjustable-rate mortgage loan: The fixed-rate mortgage option means that the interest rate on your loan will remain unchanged for the entire term of repayment; whereas the adjustable-rate mortgage option means that your interest rate on the loan may “adjust” from time to time, mostly depending on economic conditions.
- Conventional loans or Government-insured loans: A conventional loan is a home loan which is neither insured nor guaranteed by the federal government in any way; while a government-insured home loan is a loan which is insured by the federal government. There are three kinds of government-insured loans — Federal Housing Administration(FHA) loans; the U.S. Department of Veterans Affairs (VA) loans; and the U.S. Department of Agriculture (USDA) loans for rural borrowers.
- Conforming loan or Jumbo loan: Both these loans are essentially size-related loans. A conforming loan meets the underwriting guidelines of two government-controlled corporations—Fannie Mae and Freddie Mac – especially where a loan size is taken into consideration. A jumbo loan exceeds the conforming loan limits which have been set by Fannie Mae and Freddie Mac; and thus, because of its size, it underscores a greater risk for the lender.
When you compare the different categories of mortgage loans, you should also have a clear idea about the different kinds of mortgage companies, which basically include Mortgage bankers, brokers and Correspondent lenders. To make money, mortgage bankers mostly sell mortgage loans shortly after funding them; while mortgage brokers largely help potential homeowners in completing their loan applications and finding lenders. Correspondent lenders, meanwhile, act as agents for funding lenders.
Equipped with all the information about mortgage as well as different mortgage types and mortgage companies, you would probably want to know whether or not you will stand to benefit from mortgage. In that connection, when you are considering the mortgage method for buying property, you should bear in mind the fact that people who generally benefit from mortgage include first-time home-buyers, rental property companies, business owners and real estate investors.