It used to be that there were three types of mortgages available to any potential home buyer. Buyer could choose from a fixed-rate conventional mortgage, an FHA loan, or a VA loan. Since then, there has been a huge amount of growth in the number of types of mortgages from which buyers can choose.

Traditional Types of Mortgages

Fixed-rate mortgages are the oldest type of mortgages. There are now choices concerning the time span over which the principal has to be repaid. Common time frames include 10, 15, 20, 30, 40, and even 50 years.

FHA mortgage loans are insured by the government via mortgage insurance that is included in the loan. First-time home buyers are the best candidates for an FHA loan as the down payment requirements are minimal. In addition, FICO scores do not matter.

A VA mortgage is a type of government loan available only to veterans who have served in the U.S. Armed Services, and, in special cases, to the spouses of deceased veterans. The requirements for getting this type of loan vary depending on the number of years of service and whether a person’s discharge from service was honorable or dishonorable. The main benefit of this type of mortgage is that the borrower does not need to provide a down payment. The loan is guaranteed by the Veterans Administration but funded by a conventional lender.

Interest-only mortgages have very misleading names. These loans do not require the borrower to pay only the interest on the loan. Interest-only loans contain an option to make an interest-only payment, but this option is available only for a specified period of time. While this is generally true, some junior mortgages are really interest only. These require a balloon payment of the original loan balance once the loan matures.

Hybrid Mortgages

Option ARM loans are not easy to understand. They are adjustable-rate mortgages. This means the interest rate on the loan changes periodically. As the name implies, a borrowed can choose from a variety of payment options and index rates. Beware of the minimum payment option as it can result in negative amortization.

Combo, or piggyback, mortgages actually consist of two loans: a first mortgage and a second mortgage. The mortgages can be adjustable-rate, fixed-rate, or a combination of the two. Borrowers take out two loans when the down payment they put down amounts to less than 20% of the home’s purchase price. This allows them to avoid having to pay private mortgage insurance (PMI).

Adjustable-rate mortgages come in a variety of shapes and sizes. The general rule is that the interest rate will fluctuate. This can mean that it re-adjusts itself monthly, semi-annually, annually, or remain fixed for a period of time before it adjusts. If opting for an adjustable-rate mortgage, it is important to keep track of mortgage rates in your area so you can have some idea of what to expect when your mortgage rate adjusts at the next period.

With the mortgage crisis still sending waves through the economy, it is important to know what you’re getting yourself into. For more information on all things relating to home mortgages, please visit http://www.pitbullmortgageschool.com.