Different Types of Mortgages

Aside from the standard fixed- rate and adjustable- rate mortgages, there are other types of mortgages available in the market today. The mortgage market is diverse that potential homebuyers have several options to choose from if they want to get a house of their own.

Jumbo Mortgage

Jumbo mortgages are home loans which are bigger than typical mortgage rates. It may vary depending on the real estate’s location. The more ideal the location is, the higher its conforming limit will be. In order to qualify for a jumbo mortgage today, you need to at least make a 20% down payment for a purchase, you have to document your income, get an adjustable- rate loan, and your income to debt ration should not exceed 38% of your income before taxes.

Balloon Mortgage

A balloon mortgage has regular monthly mortgage payments at the start of your loan. Then, the remaining balance has to be paid off in a lump sum after a few years. It usually is only available in rural areas only. It’s almost the same as a 30-year mortgage length. The only difference is that the remaining balance would have to be paid in a lump sum after 5, 7, or 10 years. Paying it on a lump sum after a few years are difficult for some homeowners, that’s why they’re opting to refinance instead.

Assumable Mortgage

If the real estate has been sold, the buyer can finish paying the assumable loan on behalf of the previous homeowner instead of using the proceeds from the house sale. Assumable is considered rare since only two types of loan have this feature: FHA or Federal Housing Administration loans, and VA loans which are guaranteed by the U.S. Department of Veteran Affairs. It is usually less costly if compared to applying for a new mortgage. This is because a portion of the balance has already been paid by the previous home owner.

Construction-to-Permanent Mortgage

Construction mortgages are fit for customers who would rather build homes rather than buying a newly- constructed house. Homeowners will periodically pay the contractors as they complete the work and then pay the interest on the outstanding amount afterwards. Once the house has been completed, the loan can now be converted into a permanent loan. Home owners, especially in states like Tennessee, can then choose from standard fixed- rate or adjustable- rate mortgage.

Seller Financing

Seller financing is an agreement between the house’s seller and the buyer. The seller will provide financing for the buyer and the buyer will make his monthly payments to the seller instead of the bank. This type of financing usually involved an existing mortgage from the house’s previous owner. However, this may be a bit complicated since both parties have to have a written agreement before the construction begins. Any verbal or non-written agreement may cause legal issues afterwards