In the world of buying a house, mortgages are one of the more confusing pieces of the puzzle, and many homeowners don’t know their intricacies.
Most people will need a mortgage loan to be able to purchase a home, but there are several different kinds of loan options, depending on your qualifications and savings. Let’s take a look at what the difference is between these loans, and what it means for them to be backed by the federal government.
A Mortgage Primer
In basic terms, a mortgage is a financial agreement between a borrower and a lender that gives the lender the right to take the property if the borrower fails to repay the money borrowed along with interest. The biggest purchase most people will make in their lifetimes is that of a home. A mortgage makes this life step much more feasible, without having to wait many years while saving up enough money to buy the home with cash. Several variables are at play when it comes to a mortgage: the borrower’s down payment amount, credit score, the interest rate, length of the loan, and so on. All of these factors determine the homebuyer’s mortgage payment each month. They also determine what kind of mortgage loan the borrower can qualify for. Let’s take a look at the four main types of mortgages.
The most common type of mortgage, these are available as either “conforming” or “non-conforming” loans. Conforming means they follow the lending rules put out by the Federal National Mortgage Association (aka Fannie Mae). Non-conforming, on the other hand, follows the guidelines set by the Federal Home Loan Mortgage Corporation (Freddie Mac). Neither of these types of loans is backed by the federal government, and there is a wide range of options when it comes to down payment amount and even loan length. In general, however, most creditors will look for a credit score of 660 or better, making these types of loans best for borrowers with good credit and a stable income.
What is a Government-Backed Mortgage?
The other three main types of mortgage fall under the umbrella of government-backed. This means that instead of a private lender, one of three federal government agencies insures the loan: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), or the Department of Veterans Affairs (VA). Although these loans are backed by the federal government, they are offered through private lenders. With the government agency insuring the loan, risk is reduced for the lender, and they are able to offer lower interest rates and down payment options. Each agency has particular requirements for their loans, such as VA loans being reserved for military families Additionally, although it may be easier to qualify for a government-backed mortgage, you will likely pay mortgage insurance for the life of the loan.
Contact Bob Buys Houses
Mortgages can be complex, but it helps to have some basic understanding of what they are, and the differences between each type. Selling a home with a mortgage is an entirely different topic, but it also doesn’t have to be complicated. If you need to sell your Salt Lake City, Utah, home, no matter the amount you owe on your mortgage or the condition of the house, Bob Buys Houses can help simplify the process. We will make you a fair cash offer on your house, without the worry of fees or commissions. Contact us today for a free, no-obligation cash offer on your home within 48 hours!