Reverse Mortgage

Traditional

A mortgage debt that is repaid in equal monthly installments that are sufficient to repay the entire balance and all accrued interest by the end of a predetermined term.

Government Mortgages

FHA Mortgage

This is a type of loan that is insured by the Federal Housing Administration. This insurance protects the lender in the event that the borrower defaults on their monthly payments. The premium for this insurance is paid by the borrower in the form of a one time, up front premium, followed by monthly premium installments that are included in the monthly mortgage payment.

Because these loans carry less risk for the lender than other types of financing, they feature less arduous credit score requirements and higher loan to value limits. FHA loans are often used by first-time homebuyers because the down payment is only 3.5% of the purchase price. Many people also use these loans in order to obtain a lower interest rate, obtain a lower payment, and/or consolidate debt.

The limit for these loans depends on your county, with a current federal maximum of $729,500.

VA Mortgage

These are loans that are guaranteed by the Department of Veteran's Affairs. If the borrower defaults, the VA will compensate the lender for the unpaid balance. These loans are only available to active military personnel, honorably discharged veterans and, in some cases, their spouses. This program does not require the borrower to pay for any mortgage insurance.

Because these loans carry less risk for the lender than other types of financing, they feature less arduous credit score requirements and higher loan to value limits. VA loans are often used by eligible homebuyers because there is no down payment required. Many people who already own their home use these loans in order to obtain a lower interest rate, obtain a lower payment, and/or consolidate debt.

The current federal limit for these loans is $417,000, but can be up to $625,500 in some high cost areas.

RHS Loan

These are loans that were created for moderate to low income homeowners living in rural areas and are guaranteed by the United States Department of Agricultural Rural Housing Service. More specifically, these types of mortgages are for people who live in rural areas that are "open area places with a population less than 20,000 and not located in Metropolitan Statistical Areas."[1] These loans carry little risk for the lender because the USDA will compensate the lender if the borrower defaults. They also allow for more land to be financed than other types of mortgages because of their agricultural affiliation. Interest rates are similar to those of other government guaranteed and insured programs and do not depend on the applicant's credit score. This program does not require the borrower to pay for any mortgage insurance.

The maximum loan amount for this program varies by county.

Conventional Mortgages

Conforming Mortgage

A mortgage debt that adheres to eligibility guidelines set forth by government sponsored enterprises such as Fannie Mae and Freddie Mac. The guidelines consist of a minimum down payment equaling at least 5% and interest rates that correlate directly with the borrower's credit scores. Mortgage insurance is required whenever the loan amount is more than 80% of the home's value. The mortgage insurance is issued through private insurers and protects the lender against default. These loans can be less costly for some homeowners because, unlike on FHA mortgages, mortgage insurance can be waived when the loan amount is less than 80% of the home's value.

The current limit for these loans is $417,000 for all counties nationwide.

Alt-A

Similar to conforming loans, this program has limited loan amounts, as well as eligibility guidelines that are based primarily on credit history. Unlike conforming loans, however, these loans typically allow for a higher percentage of the home's value to be financed and do not require mortgage insurance. The interest rates for these types of loans tend to be higher than other types of financing because higher loan to value ratios and the lack of mortgage insurance make them a riskier investment for the lender.

The loan limits vary drastically based on credit score, loan to value ratio, and lender, but do not typically exceed $1,500,000.

Jumbo Loans

Similar to conforming loans, the eligibility guidelines for these loans are primarily credit-based; however, this program does not have a loan amount limit and does not require mortgage insurance. In addition to the high loan amounts and lack of mortgage insurance, the relatively low marketability of high value properties make this type of loan a risky investment for the lender. Because of these risks, these loans tend to have higher interest rates than other types of home loans.

Second Mortgage

This is exactly what it sounds like: a second mortgage. It is an additional mortgage against a property on which there is already an existing mortgage. These loans are typically used to liquidate equity without refinancing or to avoid mortgage insurance by financing any amount that is over 80% of the home's value.

The terms, features and rates for this type of loan vary by lender.

Non-Traditional

A mortgage debt that is repaid in manner that differs from that of traditional financing.

Government Mortgages

Reverse Mortgage

This is a product available to individuals aged 62 and older. It allows them to access the equity in their home without having to make any mortgage payments for as long as they live in the home. Funds can be received in a number of different ways, depending on the needs of the homeowner. The most commonly utilized reverse mortgage is the Home Equity Conversation Mortgage (HECM), which features extensive consumer safeguards and is insured by the Federal Housing Administration (FHA). This program does not hold the homeowner liable for any balance that exceeds the value of the home as long as the borrower stays current on insurance, taxes and repairs.

Conventional Mortgages

Home Equity Line of Credit(HELOC)

Typically used as a second mortgage, a Home Equity Line of Credit (HELOC) allows homeowners to liquidate their equity as needed. These loans are similar to credit cards in that they allow for the funds to be reused as they are repaid. The maximum credit limit is determined using several factors, including the value of the home and the credit history of the applicant. The limit tends to be higher than limits on credit cards because the debt is secured by a lien against the property.

HELOCs feature a variable rate which is based upon an index. Money can be withdrawn at any time during the draw period (usually 5 to 25 years) and must be repaid at the end of that time. The loan will either become due in full, or will be amortized over a certain period of time, depending on your original loan agreement.

Construction Loan

This loan is used to finance new home construction. In order to mitigate their risk, lenders will typically require that the borrower make a substantial down payment. Depending on the lender, there will either be an interest-only payment or no payment at all required while the home is in the building process. When construction is complete, it is necessary to refinance a construction loan with permanent financing.

Option ARM

This is a type of adjustable rate mortgage on which the borrower has an array of different payment options to choose from each month. One of these options is to make a payment that is less than the amount of interest accrued that month. The unpaid interest is added to the balance of the loan. This increase in loan balance is called negative amortization.

These loans serve certain purposes very well, but must be utilized with caution in order to ensure that the homeowner does not end up owing the lender more than what the home is worth.

Interest-Only

These loans feature payments that consist of only the amount of interest that has accrual during the preceding month. This means that the monthly payments are not causing the balance of the loan to decrease. After a predetermined period of time, the payments will increase in order to allow for the balance to be completely repaid over the remainder of the loan's term. Occasionally, these types of loans follow conforming eligibility guidelines so as to be eligible for purchased by a government sponsored entity.