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So what are you signing yourself on to when you take on a mortgage? Let BiggerPockets help!
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There are a lot of different loan types out there so
make sure you are armed with the information you need to make the best decision for you and your investment.
BiggerPockets has broken down the different loan types for you, if you still have questions be sure to post them
into our forums to get advice from other investors.
A conventional mortgage or conventional loan is any type of homebuyer's loan that is not offered or
secured by a government entity, like the Federal Housing Administration (FHA), the U.S. Department of
Veterans Affairs (VA) or the USDA Rural Housing Service, but rather available through or guaranteed a private
lender (banks, credit unions, mortgage companies) or the two government-sponsored enterprises, the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
A VA loan is a mortgage loan available through a program established by the United States Department of
Veterans Affairs. These loans are meant to serve service members, veterans, and eligible surviving spouses.
These loans offer up to 100% financing on the value of a home along with other benefits that make the purchase
of a property a low-expense.
An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing
Administration (FHA). FHA loans can be used for low-to-moderate income borrowers who are unable or do
not want to make a large down payment. These loans allow the borrower to borrow up to 96.5% of the value
of the home (with a credit score of at least 580; otherwise, a 10% down payment is required). The 3.5% down
payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time homebuyers.
A type of conventional loan, HomeReady mortgages are offered by Fannie Mae. Similar to an FHA they are meant
to help low- and moderate-income borrowers buy or refinance. These loans offer reduce the typical down payment
to as low as 3% and reduce mortgage insurance requirements, but they're also more flexible about allowing
contributions from other people. This makes HomeReady an ideal choice if you're relying on others to help
fund your home purchase. Additionally, these loans allow for private mortgage insurance (PMI) to be cancelled
or removed depending on the life-time value of the loan.
A personal loan can be a simple way to secure cash. Typically money is borrowed from a bank, credit union,
online lender or a personal lender. The loan is paid back on a short timeline with monthly installments,
including interest, or structured based on negotiations in the case of a personal lender.
A hard money loan is a short-term and high-interest loan. Unlike traditional loans a HML is backed by the
value of the real estate and not by the credit worthiness of the borrower. They are funded by private investors
or companies as opposed to conventional lenders such as banks or credit unions.
A type of conventional loan, a adjustable-rate mortgage is a type of mortgage in which the interest rate
applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate
is fixed for a period of time, after which it resets periodically, often every year or even monthly.
Should you have any further questions about the different types of mortgages loans feel free to browse our
mortgage loan FAQs.
Still not sure what type of loan you should use? BiggerPockets has a guide to help you make the best decision for
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