What is a Mortgage? What are the Different Types?

Are you interested in becoming a home buyer? If not now, at some point?

For each buyer comes a unique set of goals, finances, et cetera. Due to this, it's paramount to have discernible information for people outside of the real estate sphere.

What makes home buying possible?

Mortgages make it possible, acting as special loans for home buying. In the U.S., $12.14 trillion is owed on 84.0 million mortgages, averaging $144,593 per person. Mortgages constitute 70.2% of total owed money.

Additionally, Americans owe $349 billion on 13.1 million home equity lines of credit (HELOCs), averaging $26,702 per account, making up 2.0% of total debt.

To get a mortgage, you apply for a loan, meeting criteria with credit and a down payment. Payments are divided into principal, interest, taxes, and insurance (PITI).

Principal reduces loan owed, interest is the lender's fee, taxes cover property taxes, and insurance protects against risks to the home like fire. Initially, payments mainly cover interest, shifting towards loan repayment over the life of the loan. When applying at a bank only certain products can be assessed; with a mortgage broker there is no vested interest in a certain product. A mortgage broker evaluates the entire market to match a client with the best product.

There are diverse mortgage options for non-traditional borrowers like business owners or investors.

For many of us, buying a home necessitates a mortgage, yet mortgages vary widely. To help you find the ideal home loan, here are the 5 traditional types of mortgages briefly explained:

1. Conventional Loan: Common type, divided into conforming (meets federal rules) and non-conforming (jumbo loans).

2. Jumbo Loan: Larger than government limits, ideal for expensive properties but requires higher credit scores and upfront payments.

3. Government-backed Loan: Supported by FHA (lower credit scores, small down payments), VA (military members, no down payment), and USDA (rural areas, flexible terms).

4. Fixed-Rate Mortgage: Interest rate remains constant throughout the loan term, ensuring predictable monthly payments.

5. Adjustable-Rate Mortgage (ARM): Initially lower interest rate, but can fluctuate based on market conditions after an initial fixed period.

Mortgages play a crucial role in home buying, for those with or without substantial savings. There are diverse home loan options tailored to different needs. By enabling home purchase, mortgages constitute a significant portion of national debt. Thus making them an integral part of day to day life. They encompass choices such as fixed-rate, adjustable-rate mortgages, and FHA loans. Prior to choosing a mortgage, consider factors like down payment capability, intended duration of residence, and financial planning. To get a better assessment of where you stand, what you qualify for, and which product is the best fit for you, contact a mortgage broker near you.