If you are currently out in the
real-estate market scouting for home loans, then you must have come across
terms such as conventional home loans and non-conventional home loans. But,
what does these terms actually mean and what difference will it make if you
choose one over the other? Let us find out.
Conventional Loans
Conventional mortgages are those types of mortgage loans, which are NOT
secured or backed up by any government sponsored entity. They are also known as
conforming loans as they meet the guidelines set by Fannie Mae and Freddie Mac,
which are the two biggest investors of conventional home loans. All
conventional types of mortgages
require a down payment of at least 20%, otherwise you are required to buy
Private Mortgage Insurance.
There are basically two types of
conventional home loans:
Fixed
Rate: As the name suggests, the rate of interest remains the same
throughout the term of the loan.
Adjustable
Rate: The rate of interest changes every year after the initial fixed rate
period is over. The rate can go up or down depending upon the conditions of the
market.
Unconventional Loans
All those mortgages type of loans that do not fall under the category of
conventional loans are called unconventional or government loans. These types
of mortgages are backed by the government of the United States and offer lower
interest rates and more flexible terms to certain buyers. These loans help
those borrowers in purchasing a home, who couldn’t have qualified for
conventional mortgages.
Unconventional mortgages are of
two types:
FHA: An FHA loan is backed by the Federal Housing Administration and allows you to purchase a home with just 3.5% down payment.
VA: These loans are backed by Department of Veteran Affairs and are available for military veterans and current army members. These loans allow veterans to purchase a home with zero down payment.
In order to know more about different types of mortgages, click here. Or you can also call All Western Mortgage at 702-850-2790.
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