Types of home loans

Banking & Finance

The world of finance is huge and in this world, there are multiple options to choose a types of home loans and also multiple financial advisors are there to suggest what type of loan you should get. 

As a borrower, you take a loan from lenders then lenders should be the initial advisor for you, you have to ask them about home loan qualities, mortgage loan benefits or disadvantages, home loan requirements, home loan required documents, home loan process, home loan budget, type of home loans for bad credit score and good credit score buyers, a home loan for first-time buyers, home loan down payments, and the most important question is what type of home loan they provide to all kind of credit score buyers whether they are bad or good. 

Before proceeding to the next step for the loan, you have to ask all these things for your security and your knowledge from the lenders because the lenders are the main financial provider who understands and clarify all the doubts regarding home loans to offer many kinds of loans for buying the home.

By the way, all kinds of loans mainly depend on your credit score or financial position so that you can be able to repay the loan and the lenders survey your credit score to proceed with your loan formalities and decide what type of loan you are able to get that will not disturb your financial stability in future.

Let’s discuss what are the most preferable types of home loans and also read about their specialties by which you can easily find the best loan choice for you that also maintains your financial status.

What are the types of home loans that can suitable for the first-time buyer and existing borrower

Here are some types of home loans for first-time buyers and existing buyers who need a home loan at one time that can suit them based on your past financial performance or current status to maintain a healthy financial life.

Home loan for the existing borrower with strong credit history

Conventional home loans 

Fannie Mae and Freddie Mac are the two US agencies that offer most of the mortgage loans or home loans to the borrowers after knowing the real truth of financial stability of the borrowers because these loans are conforming loans that are not offered by the government or by which buyers can’t take a step back and have to repay the whole loan principal amount on a decided time period. To get conventional home loans, borrowers need to run with the following strict requirements such as: 

  • Good credit score (at least 650 to 700) for 3% down payment
  • Need to pay additional PMI (Private mortgage insurance) on time if less down the interest than 20% and no additional PMI if stable down the interest at least 20%.
  • 3% down payments are required to submit to get the loan
  • Must have better goodwill with asset, and liability to pay mortgage installments with interest.
  • Need to face many kinds of mortgage charges such as underwriting charges, broker charges, settlement charges, and closing charges.
  • Must have proof of income and other identity proofs for buyer verification
  • Ability to accept high-interest rate on the principal amount
  • Fixed-rate of interest(FRI)
  • Creditors or lenders fixed rules while offering a loan
  • Requirements are always the same for the whole loan procedure
  • Run with application fee as a proof

Home loans for the first time buyer and existing with bad credit history

Unconventional home loans

Unconventional loans are known as non-conforming loans or due to not require more requirements to get the loans that are offered by the federal government. These mortgage loans lie under the government loans but are excluded in FHA (Federal Housing Administration), USDA (US Department of Culture), HUD (Housing and Urban Development), VA (Veterans Administration) home loans.

No additional requirements are needed to get this loan, it can easily get from the government in the US.

  • Run with Low credit history
  • No down payment
  • First-time buyers can easily get this type of home loans
  • Get this loan without need any standard documents, requiring only basic documents
  • Low-interest rate charge on the principal amount
  • No strict guidelines to follow
  • No higher qualification is required
  • Average Credit score (around 500 and 650)
  • No tight verification and investigation
  • For Low-income buyers
  • No Fixed rate of interest (FRI)
  • Are defined as Quick loans
  • No lengthy procedure
  • No additional fees to submit
  • Breakable loans
Types of Unconventional loans 
  • FHA (Federal Housing Development) – For low credit history buyers and first-time buyers.
  • USDA (United States Department of Agriculture) – For Average credit history buyers
  • VA (Veterans Administration) – For Military borrowers

All three have some similarities and some dissimilarities but mainly for low to average credit history buyers who can’t be able to pay high interest on loan amounts with PMI. In simple words, borrowers who do not have enough funds to invest to get a loan.

Long-term home loans

Fixed-rate home loans

Fixed-rate home loans define a fixed loan that runs till a fixed time with fixed interest which can be applied by first-time as well as existing borrowers with good credit history. This loan contains possibilities of verification, high rate interest charges on the loan amount, fixed rate of interest. These loans are mainly offered to strong financial credit buyers who are capable of paying high interest on small amounts of loans.

  • No monthly expenses
  • Long term loans
  • No drastic change in interest rate
  • Same procedure for the whole loan life
Period of fixed loans

There is mainly three specific periods of fixed loans:

  • 10 years of fixed loan – for 10 years of loan in which high-interest rate charge on a small amount of loan for long term
  • 15 or 20 years of fixed loan – for 15 to 20 years of loan in which high-interest rate charges on small amounts of loan as well as big amounts of loan for long term loans.
  • 30 years of a fixed loan and a high-interest rate charge on 30 years of long-term loans.

Adjustable interest rate 

Adjustable home loans are different from fixed loans as compared with interest only, otherwise, it is quite similar with fixed loans. The interest on these loans is changing day by day according to financial market situations and the lenders run with the same changes to maintain the profession. If they will not run with the financial market condition, then they can be swung into their profession. These loans involve too much risk with no surety of stability to the borrowers and lenders.

  • No fixed rate of interest
  • Long-term loans are provided
  • Low as well as a high rate of interest charge
  • Change rates based on market conditions
  • Offered in variable or base rate
  • Affordable loan with easy application

Home loans for high credit score buyers

Jumbo home loans

Jumbo loans are quite similar to conventional loans or we can say that it is like conventional loans. Both have similar specialties as well as requirements to get the loan. This is also conducted by Fannie Mae and Freddie Mac agencies of the United States. Even we can say that this is a more stressful loan from among all types of home loans that covers all stressful activities such as 

  • high credit score required
  • high rate of interest
  • high limits
  • risky for lenders 
  • the Bulk of guidelines
  • higher down payments
  • run with high market conditions
  • hard to apply like conventional loans
  • expensive loan ever
  • complex agreement
  • mainly for urban areas residences
  • credit scores are higher than 700
  • higher closing costs and other costs
  • Large number applied for the loan in the United States
  • Chance to get a dream home
  • Opportunity to get a large amount of loan 

How to choose a home loan from all types of home loans

We understand that it’s not that easy to choose a home loan without having financial knowledge, in my opinion, if you are a first-time borrower and you don’t have an idea how to apply, which loan is best for you, and many more. In that case, you can hire a financial consultant for selecting a loan. The lenders and creditors also offer advice to their borrowers so that they can also be familiar with all loans and smoothly run with their loans.

To go with lenders, it is the safest idea to choose a home loan type because lenders are the only ones who provide the loan, they can be the bank, financial lenders, and mortgage lenders specialists, mortgage loan officer, and others. 

In simple words, for choosing the right types of home loans, choose the right lender.

Other types of home loans

Along with the above types of home loans, here are some other types of loans that are divided into some categories:

  • Construction Home loans
  • Improvement Home loans
  • Bridge loans
  • Joint Home loans
  • And more types

If you think that these loans are different, don’t think that all of these 4 loans involve the above types of loans. We have just told you that loans are applied for these loans.

We hope after reading the article you will get your answers and know your loan types with your comfort lenders.