Types Of Mortgages
There are many different mortgage types available. The main four: Conventional, FHA, VA, and USDA, make up the majority of home lending. Each mortgage type has its advantages and may be more or less appropriate for you to use depending on your needs. Like tools for the same job, some are better matched for a particular situation, and some are more expensive than others. A few characteristics of each of the four major loan types are listed below. TIP: Once you have some general knowledge of the different types of mortgages available, discuss your options with a trusted mortgage professional to help determine which type of financing is best suited to your situation.
Conventional Conforming and Jumbo Mortgages
Conventional mortgages are the plain vanilla product of the mortgage world. They include conforming mortgages (loan amounts up to $424,100*) and jumbo mortgages (loan amounts above $424,100*). The chief advantage to conventional loans is the possibility to pay no mortgage insurance with a 20% or greater down-payment or equity position. Mortgage insurance charged for lower down-payments or equity positions is typically less expensive than that which is required for FHA, VA, and USDA mortgages. Conventional mortgages are an excellent choice for those with medium to high credit scores. These mortgages work especially well for those who have 20% or more for down-payment or equity or those who would like for their mortgage insurance to drop off automatically once their equity position reaches 20%. TIP: Always compare long term annual percentage rates (the number which includes all lender required closing costs and mortgage insurance) as you decide which type of mortgage you will apply for.
*In some high cost areas the conforming limit is higher than $424,100.
FHA (Federal Housing Authority) loans are insured by the Federal Government, and provide an opportunity for those who might not otherwise be able to purchase to own a home. FHA guidelines for approval are more lenient than conventional guidelines relating to credit score, job stability, co-signers, and debt to income ratio. FHA mortgage insurance can be pricey, requiring 1.75% of the mortgage amount to be paid as a fee or financed into the new loan amount at closing, and .85% of the mortgage amount to be paid each year on a monthly basis.
VA (Veterans Administration) mortgages are reserved for those who have served in the US armed forces. No down-payment is required for a VA mortgage, making these mortgages very attractive to those with limited cash when they purchase a home. Mortgage insurance (the VA Funding Fee) may be paid in cash or financed into the mortgage amount at closing. No monthly mortgage insurance is collected for VA
mortgages. TIP: Disabled veterans are given preferential treatment with mortgage insurance reductions based on their level of disability.
USDA mortgages are administered by the United States Department of Agriculture and are offered in rural communities. No down-payment is required, and closing costs can often be financed into the mortgage amount at closing. Mortgage insurance is paid upfront, with no monthly mortgage insurance requirement after closing. USDA mortgages have property type and location restrictions.
If you are interested in discussing a possible purchase or refinance, give Kent a call at (630) 330-1334 or send an email to
Kent Cochrum, Senior Loan Originator
(630) 330-1334 mobile
(630) 634-5136 office
Avenue Mortgage, a division of CIBM Bank, member FDIC
330 S. Naperville Road, Wheaton, IL 60187
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