If you are starting the home buying process and are confused about the types of loans that are offered, don’t worry you are certainly not alone. While your lender should explain the differences, pros, and cons to each loan here is a quick overview so that you can have an idea before you meet with the lender.
Fixed Rate Mortgage Loan: This is a very common type of loan where the monthly payment amount is amortized (meaning the same) for a set amount of years. The amount of years can range from a 5 year fixed rate mortgage all the way up to a 50 year mortgage. In these loans you are paying more of the interest off in the beginning of the loan repayment and that dwindles as you pay more into principle. In these loans you can shorten the length of the loan by paying a bit more toward principle each month.
FHA Loan: These are especially handy for first time home buyers or those with not-so-great credit since the down payment requirement is minimal and your credit scores are not near as important. In fact, if your FICO score is 580 or above you only have to put down 3.5%. These loans are insured by the government through mortgage insurance that is funded into the loan.
USDA Loans: (sometimes called a rural development loan): These mortgages are designed to serve buyers in rural or small towns where credit availability can be tight.
VA Loans: These loans are reserved for active and retired military personnel.
If you quality for the USDA or VA loan than you can get the biggest loan for the least. Down payments can be as low as zero!
Read this article for more information on specialty loans.