Conventional, VA, USDA, or FHA? Are you wondering what all the terms mean? When it comes to buying a home, there are so many terms it’s hard to keep them all straight. Here is a quick guide to demystify the names used for different types of loans and loan products here in Utah.
- Conventional- a conventional loan or conventional mortgage refers to a loan that is not insured or guaranteed by the federal government. A conventional or conforming mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate.
- FHA- FHA stands for Federal Housing Administration, FHA is not actually a type of loan but insurance that protects the lender from a loss if the borrower defaults on the loan.
- VA- VA stands for Veterans Affairs and is a loan in the United States guaranteed by the United States Department of Veterans Affairs. The loan is issued through qualified lenders. The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses.
- Utah Housing- Utah Housing Corporation loans allow an eligible borrower, to borrow all or a portion of their down payment and closing costs. Qualified borrowers are able to purchase a home with little to nothing down if they qualify. This loan includes a second mortgage.
- USDA- USDA loans are mortgages backed by the United States Department of Agriculture as part of its USDA Rural Development guaranteed housing loan program. USDA loans may offer up to 100% financing with reduced mortgage insurance premiums and feature below-market mortgage rates. The property has to be located in a designated rural area.
- Jumbo- Jumbo loans refer to any loan amount that exceeds the conforming loan limits established by regulation. For most of the United States the limit is $424,100 (as of the time of this posting). These loans typically require 2 appraisals instead of just 1 and require higher down payments (sometimes up to 30%)!
- Construction- A construction loan is typically a short-term loan used to pay for the cost of building a home. It may be offered for a term (typically one year) to allow time to build your home. At the end of construction, when the house is done, you will need to get a new loan to pay off the construction loan.
- Fixed- A fixed rate mortgage is a loan that has a fixed interest rate for the entire term of the loan. The distinguishing factor of a fixed rate mortgage is that the interest rate over the entire period of the loan is set at the time the loan is originated.
- Adjustable- An adjustable rate mortgage is a loan on which the interest is figured according to a predetermined formula. The interest rate can vary through the life of the loan through specific terms. It is typically tied to an index plus a margin to determine the interest rate.
Working with a qualified Loan Officer will take all the worry out of what type of loan is right for you. If you are ready to start your home buying process but feel overwhelmed with all the lingo, options, and steps just call or text me as I’m never too busy to help. For additional information, please check out my mortgage calculator or call me today.