Types Of Real Estate Loans

Dated: 09/25/2019

Views: 49

Types Of Real Estate Loans


When it comes to paying for your home, you have a wide range of financing options. Your home mortgage will likely come through a financial institution such as bank, or it may come through the seller. We can direct you to a mortgage expert who can help you sort through the options. But here's our run-down on the basics: (Remember, interest rates quoted here are intended for illustration only. Rates change daily.)

TYPE: CONVENTIONAL

Characteristics: Can be obtained with as little as 5 percent down payment. If the down payment is less than 20 percent, it may be necessary for the loan to have Private Mortgage Insurance (PMI) to protect the lender.

Term: Paid off in equal monthly payments over 15, 25 or 30 years.

Interest Rate: Stays the same for the life of the loan.

TYPE: ADJUSTABLE RATE MORTGAGE (ARM)

Characteristics: Low initial interest rate with payments that typically increase over time. Popular with first-time buyers and buyers who plan to move or refinance in three to five years. 

Term: Varies by lender.

Interest Rate: Subject to change on a periodic basis.

TYPE: BALLOON

Characteristics: Lower interest rates and monthly payments than fixed-rate loans. Best for borrowers who plan to move or refinance within the loan term. May allow conversion to a fixed-rate loan at term's end.

Term: 5-7 year loans, amortized over 30 years. Repaid in equal monthly payments plus a "balloon" payment for the remaining balance.

Interest Rate: Varies by lender.  

TYPE: BUY-DOWN

Characteristics: Home owner, builder or third-party puts additional cash up-front in exchange for a lower interest rate.

Term: Varies.

Interest Rate: Varies.

TYPE: FHA

Characteristics: Insures loans, making lenders willing to finance home purchases on favorable terms. Down payments as low as 3 percent. Discount points may be paid by either seller or buyer.

Term: Varies by lender; however, the FHA charges an up-front Mortgage Insurance Premium, similar to Private Mortgage Insurance, that can be financed in the mortgage amount or paid in cash at settlement. The borrower must also pay an annual Mortgage Insurance Premium of 0.50 percent, which is collected monthly.

Interest Rate: Varies by lender

TYPE: NON-CONFORMING

Characteristics: Provides home buyers with products that do not conform to the normal FHA/VA and conventional lending guidelines. These unique loan products are tailored to fit specific financial situations, including:

  • Bankruptcies less than 2 years from discharge;

  • No income/no asset verification loans;

  • Late payments on previous or current mortgage;

  • Bank statement programs for the self-employed; or

  • Excessive credit problems, but sufficient liquid assets to work with.

Term: Varies.
Interest Rate: Varies.

TYPE: OWNER ASSISTED

Characteristics: Owners may finance first, second, third or fourth loans. They may loan their equity back as a first mortgage (often called a "take back").

Term: As determined by the owner.

Interest Rate: As determined by the owner.

TYPE: SECOND MORTGAGE

Characteristics: Made by the seller or by a Commercial lender.

Term: Varies. Sometimes interest-only payments are made until the term date, when the balance is due.

Interest Rate: Based upon lender or buyer/seller agreement.

TYPE: VETERANS ADMINISTRATION

Characteristics: Available to qualified veterans of the Armed Services, Reserves and National Guard. Loans can exceed $200,000 with no down payment. Flexible underwriting guidelines. Closing costs may be a gift. Can be combined with second mortgages and are assumable (upon qualifying) by future buyer.

Term: Payment fixed for the full term.

Interest Rate: Varies by lender.

TYPE: RENOVATION FINANCING

Characteristics: Provides buyers money to fix up, renovate, repair, replace or remodel a home with the purchase. Can combine this type of financing with FHA or Conventional financing.

Term: Varies.

Interest Rate: Varies.

Blog author image

Frank Vazquez

Frank Vazquez is one of New Jersey's Top Realtors, helping you buy and sell Real Estate with a Trustworthy Professional. Rated Best of Zillow - Top 1% of all Premier Agents Nationwide 2017/2018....

Latest Blog Posts

Fed Cuts Interest Rates To Zero And How It Affects Real Estate

There’s a silver lining in the economic anxiety Americans face: Interest rates are at unprecedented lows and benchmark bond yields have dropped below 1% for the first time in history, conditions

Read More

How To Properly Clean And Disinfect Your Office

As coronavirus infections spread and cause shutdowns of offices and schools across the U.S., many are understandably on edge.COVID-19, the novel respiratory disease that started in

Read More

How To Negotiate Debt With Credit Card Companies

Americans are no strangers to credit card debt. According to the Q4 2019 TransUnion Industry Insights Report, total credit card debt in the United States was $847 billion at the end of 2019.

Read More

Todays Mortgage Rates And What You Need To Know

What are today's mortgage rates?On February 6, 2020, according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate is 3.640

Read More