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Understanding Mortgage Products

By Thomas Mitchell

When you decide to buy a new home, choosing the right loan product will save you quite a large sum of money in the long run and will also increase your chances of getting qualified for the loan. While the number of choices for mortgage products has gone down considerably since the recession, the remaining options should be carefully considered before you make a choice.

The first type of mortgage product is known as a conforming or conventional loan. Freddie Mac and Fannie Mac are in conservator-ship to the federal government and they are the main ones who offer this type of loan. A large majority of every single mortgage written today is purchased by Freddie Mac or Fannie Mac. The loan products they offer are known around the industry as the standard basic loan offer. The do not provide for very much flexibility and typically require a twenty percent down payment.

A second type of mortgage product is known as an FHA loan. These types of mortgage products are offered by the U.S. Department of Housing and Urban Development. This type of loan has been used as a tool to increase home ownership for people for a very long time. This type of loan is provided by the same mortgage companies and banks that offer conventional loans and the FHA will insure against default as well. An FHA loan is tailored to someone who brings in a low or average income and may have trouble finding a conventional loan. The guidelines on an FHA loan are typically less stringent than other loan guidelines, and they usually require a lower down payment as well, which can range from 1% up to 19%.

If you have served in the American armed forces before, you will probably be eligible for a VA loan. The Department of Veterans Affairs guarantees these for veterans. These types of loans are not really offered by the government but rather VA offers lenders who can give financing to the borrowers, which is a guarantee in case they get into financial trouble. A VA loan can be fully funded but the requirements for the condition of the property are generally stricter. In most cases the home has to be in excellent condition for the VA to approve a fully funded loan. There is no down payment on these loans and no mortgage insurance required either.

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