Summer is a crazy time in real estate. The market is as hot as the weather, and properties are going fast. One of the most important parts of the home buying process is obtaining a mortgage. If you’re in the exciting position of buying a home, be sure to educate yourself on the different types of available loans below.
Conventional: These loans are neither insured nor guaranteed by the federal government. Also known as a conforming loan, conventional mortgages adhere to the guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The Federal Housing Finance Agency (FHFA) listed the general loan limits for one home in 2016 were $417,000 while the maximum limit was $625,500, but the limits vary depending on which county you live.
Conventional loans usually are fixed rate or adjustable rates. Fixed rate home loans keep your interest rates steady through the life of the loan, and payment is made equally and incrementally in monthly payments. In an adjustable-rate mortgage or ARM, the interest rate can change from year to year.
Hybrid Loans: A hybrid loan refers to a particular type of mortgage where buyers have a fixed, low rate mortgage for either the first 3, 5, or 7 years of the loan. A hybrid loan can create financial flexibility and savings. Once the initial terms of the loan are paid off, the mortgage switches to an adjustable rate. Homeowners can cap the interest rate, but assume some risk that they will increase in the future.
Government Program Loans: These government subsidized loans protect lenders against default payments and in effect making it easier to give homeowners lower interest rates. These programs are designed to make homes more affordable for lower-income and first-time homebuyers. The most common type of government-backed loans is Federal Housing Administration, or FHA, loans. VA Loans are also a common kind of government program loans.
Bridge Loans: A bridge loan (also known as a swing loan, gap financing, or interim financing) is a short term loan typically set up for six to 12 months that allows homebuyers relief between buying and selling a home. Typically the interest rate is slightly higher, as it “bridges the gap” between you new and old properties.