If you are thinking about buying a home, you have no doubt thought about how you will finance that home. And since you probably aren't in the habit of buying a house on a regular basis, or if you're a first time homebuyer, you probably aren't well-versed in the different types of home loans available to you. Therefore, we are going to give you the five most common home mortgage loan options and explain how they work.
The Five Most Common Types of Home Loans
1. FHA Loan
Federal Housing Administration (FHA) loans are extremely popular and generally offer more favorable terms than their counterparts. An FHA loan will in many cases offer down payments as low as 3.5 % of the purchase price, lower closing costs and can be easier to qualify for, …show more content…
A conventional loan can be obtained with as little as a 5% down payment. However, if you put less than 20% down, you will be required to pay private mortgage insurance (PMI), which is collected to protect the lender in the event you default on your loan. PMI can be paid up-front or can be capitalized onto the loan. You will have to pay the PMI until you have reached a loan-to-value (LTV) ratio of 80%, which is 20% equity in your home, at which point the PMI is no longer required. If you don't want to pay the PMI, then you will need to put a 20% or more down payment on your home. Another option to avoid paying the PMI premium is to consider a second mortgage, also known as a piggyback mortgage, which is in addition to your first mortgage. Generally, most conventional loans offer terms that range anywhere from 10 to 30 years.
3. Second Mortgage Loan
A second mortgage or piggyback mortgage is an additional mortgage loan taken out on the same property and can be offered by the seller or a commercial lender. A second mortgage can be used for a variety of reasons, such as: covering part of the down payment to avoid paying PMI premiums, financing home improvements or consolidating debts. However, a second mortgage will generally be carried at a higher interest rate than the first mortgage. The terms for a second mortgage can be anywhere from one to 20 years.
4. Veterans Administration
The Five Most Common Types of Home Loans
1. FHA Loan
Federal Housing Administration (FHA) loans are extremely popular and generally offer more favorable terms than their counterparts. An FHA loan will in many cases offer down payments as low as 3.5 % of the purchase price, lower closing costs and can be easier to qualify for, …show more content…
A conventional loan can be obtained with as little as a 5% down payment. However, if you put less than 20% down, you will be required to pay private mortgage insurance (PMI), which is collected to protect the lender in the event you default on your loan. PMI can be paid up-front or can be capitalized onto the loan. You will have to pay the PMI until you have reached a loan-to-value (LTV) ratio of 80%, which is 20% equity in your home, at which point the PMI is no longer required. If you don't want to pay the PMI, then you will need to put a 20% or more down payment on your home. Another option to avoid paying the PMI premium is to consider a second mortgage, also known as a piggyback mortgage, which is in addition to your first mortgage. Generally, most conventional loans offer terms that range anywhere from 10 to 30 years.
3. Second Mortgage Loan
A second mortgage or piggyback mortgage is an additional mortgage loan taken out on the same property and can be offered by the seller or a commercial lender. A second mortgage can be used for a variety of reasons, such as: covering part of the down payment to avoid paying PMI premiums, financing home improvements or consolidating debts. However, a second mortgage will generally be carried at a higher interest rate than the first mortgage. The terms for a second mortgage can be anywhere from one to 20 years.
4. Veterans Administration