Types of Mortgages: A Guide to Different Mortgage Types
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Posted: June 06, 2023 by Esteban Rivera
Types of Mortgages: A Guide to Different Mortgage Types
Are you looking to purchase a home or refinance your current mortgage? If so, it’s important to understand the several types of mortgages available to you. Knowing the several types of mortgages and their features can help you make an informed decision when it comes to financing your home.
- Fixed-Rate Mortgage: A fixed-rate mortgage is a loan with an interest rate that remains the same for the entire term of the loan. This type of loan is ideal for borrowers who want to know exactly what their monthly payments will be for the life of the loan.
- Adjustable-Rate Mortgage (ARM): An adjustable-rate mortgage is a loan with an interest rate that can change over time. The initial interest rate is typically lower than a fixed-rate mortgage, but the rate can increase or decrease over time depending on market conditions.
- FHA Loan: An FHA loan is a mortgage insured by the Federal Housing Administration. These loans are designed to help borrowers with lower credit scores and smaller down payments qualify for a mortgage.
- VA Loan: A VA loan is a mortgage loan backed by the U.S. Department of Veterans Affairs. These loans are designed to help veterans and active-duty military personnel purchase a home with no down payment and more favorable terms.
- Jumbo Loan: A jumbo loan is a loan that exceeds the conforming loan limit set by the Federal Housing Finance Agency. These loans are typically used to purchase more expensive homes and require a higher down payment and higher credit score.
- Reverse Mortgage: A reverse mortgage is a loan that allows homeowners, age 62 and older, to access the equity in their home. The loan does not require monthly payments and the loan balance is due when the borrower moves out of the home or passes away.
If you are looking to purchase an investment property, there are also other types of mortgages to consider known as Non-QM Mortgages. Non-QM mortgages are a type of mortgage that doesn’t meet the standards of a qualified mortgage (QM). These mortgages are often used by borrowers who don’t meet the standard criteria for a QM loan, such as those with a higher debt-to-income ratio or a lower credit score or investors needing investment and/or commercial loans. Non-QM mortgages can be divided into two main categories: portfolio loans and alternative loans.
- Portfolio loans are loans that are held by the lender and not sold on the secondary market. These loans are typically more flexible than QM loans and can be tailored to the individual borrower’s needs. They are often used by borrowers who don’t meet the standard criteria for a QM loan.
- Alternative loans are loans that are not eligible for sale on the secondary market. These loans are typically more expensive than QM loans and may have higher interest rates and fees. They are often used by borrowers who don’t meet the standard criteria for a QM loan.
Some types of non-QM loans are:
- DSCR = Debt Service Coverage Ratio Loans
- Private Money Loans
- Hard Money Loans
- ITIN Loans
- Foreign National Loans
No matter which type of non-QM mortgage you choose, it’s important to understand the terms and conditions of the loan before signing any documents. Be sure to read the fine print and ask questions if you don’t understand something.
We hope this guide has been helpful in understanding the several types of QM and non-QM mortgages. If you have any questions, please don’t hesitate to contact us.
I will be doing different articles going into more detail with each type of loan. So, stay tuned for more valuable information. 