6 Different Types of Mortgages

What Types of Mortgages Are There?

Hey, Dave Edwards, Treasure Valley Dave here in Nampa, Idaho. We will discuss one of the top 10 questions people ask about the real estate market: 6 different types of mortgages. There are several different types of mortgage loans. Here are the most common ones:

Fixed-Rate Mortgage

This is typically referred to as a conventional loan. The nice thing about this is that your mortgage payment never goes up, unlike rent, which could go up or down. That means your principal interest will be locked in for a specific time. So your taxes or insurance could increase, but your principal mortgage interest rates will always be the same.

You can put different amounts down on these conventional loans. To avoid private mortgage insurance (PMI), you have to put at least 20% down, but you can put down 5% or 10%. And depending on how much you put down, you may have to pay PMI for a while, but only until you get 20% equity in your house and meet other conditions like having the loan for one or two years. But once you hit those requirements, you can take off that mortgage PMI, saving you $200 or $300 monthly.

Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages are typically locked in for a certain amount of time, and then they adjust, and they’re tagged to a predetermined financial marker. So if that indicator goes up, then your payment goes up. So if that indicator comes down, your mortgage payment will come down in theory. 

It can be cheaper when you get started with an adjustable-rate mortgage. And if your idea is that you will try mortgage refinance or sell the house while you’re still in that locked period, maybe it makes sense, but don’t get trapped into a position where your payments double, and you have nowhere to go with that.

FHA Loan

Like the fixed-rate mortgage, your payment on FHA loans is fixed. This type of loan has a PMI. The thing with an FHA loan, though, is that PMI will always stay with the loan until you pay it off. But the minimum down is 3.5%, so it’s much cheaper than you’d typically expect to pay for a conventional loan.

Also, some programs can help certain people (like first-time buyers) with their downpayment. Sometimes these grants don’t require you to pay them back if you’ve been in the house for a while. You sometimes need to do that if you’re only in there briefly. Your lender can answer all the different mortgage questions about that. Furthermore, I know a lender whose bank has a program where you can start saving for your downpayment, and all these great incentives match with whatever program is available. 

The most important thing to take away is to talk with your trusted mortgage lender about this.

VA Loan

If you started in the military or earned eligibility for using the VA loan, you can apply for a VA loan multiple times. But the thing is, the first time you use it, there’s a VA funding fee waived. The second time you use it, that is not waived. This is like a PMI type of thing, but it’s all paid in one lump sum upfront that’s typically rolled into the loan.

If you have a particular disability rating, your funding fee can also be waived. Again, these are great topics to talk over with mortgage lenders.

You can get into the house with zero down when using your VA to get a loan. There may still be some closing or home inspection costs, and you may have to come up with the money for those, but I have seen several times where vets go through the process, and they get the owner’s money back at closing because they went in with zero down. So that can be very handy.

The thing is, if you don’t, your payment will be higher. So if that works for you, that’s great.

Bonus: RD Loan

A Rural Development (RD) loan is similar to a VA loan because you can also get in for zero down. But in that case, it’s not you who must qualify but the property. The property has to be in a particular area that’s more rural. So I just looked into buying a house the other day that’s five miles outside of our site, and it’s considered rural, and you could go into that with zero money down.

Jumbo Loan

A jumbo loan is a loan that does not conform to the average lending limits, so this is for more expensive houses. Those loans are usually more costly, but how much is that limit? 

Well, it changes frequently, and it depends on your location. For example, in places like ours in Nampa, the mortgage jumbo rates could be $600,000 now or $700,000 a year from now. So, again, talk to a lender who will be your best resource on that. 

Reverse Mortgage 

The reverse mortgage has been around for a while, and they have a terrible reputation. Deservingly so, but over the years, there’s been a lot of protections that have been built into this loan. A big part of that is more consumer education, so you know what it is.

There are some good things about it for the right circumstance. First, you or your spouse have to be a certain age to qualify. If you’re coming to this new house with, let’s say, $300,000 in equity from the home that you just sold before moving to this new house, you can use the reverse mortgage loan to take that $300,000 and add it to some of the equity of this new house. Then, maybe you can get $400,000 out of the house and still not have to make monthly payments.

There are ways to get a more expensive house than you could have otherwise, and you may not need to make monthly payments. And this loan works by retaining the equity in the home, so when you pass, you’ll still be able to give something to your heirs.

I’m not a lender or an expert on these things. But I know enough to ask the right questions about mortgage loan types, and that’s what we’re all about here.

In Conclusion

If you’re thinking about Idaho, or it’s a place you want to check out because you’ve heard many good things about it, contact us. You can also give me a call or send a text to 208-860-2004 or email our team at info@tresurevalleydave.com. We’ve all moved here from somewhere else and are so glad we did.