What Types of Mortgage Loans Are There?

You’re ready to embark on your next real estate investing venture, but you don’t have the resources to pay in cash. No problem!

Whether you need a little more flexibility with the loan terms or want to build a new construction, plenty of financing options are available to fit your unique situation and goals. 

So, precisely what type of mortgage loans are available? Here are some of the most common:

FHA

Backed by the Federal Housing Administration, FHA loans are an excellent option for buyers who don’t have a large down payment or high credit score.

An FHA loan can be used to purchase a single-family home, condo, multifamily property, and some manufactured homes. With this type of loan, more favorable loan terms may be available to help borrowers who can’t get a traditional home loan.

Conventional

Conventional loans can be obtained through private lenders, such as banks, credit unions, or other financial institutions.

The federal government does not insure this type of loan, and it’s broken down into “conforming” and “non-conforming” categories. Conforming loans follow regulations set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Additionally, with a conventional loan, borrowers may find stricter credit requirements and their credit score determining their interest rate.

VA (Veterans Administration)

VA home loans help service members, veterans, and their spouses purchase a home. 

As part of this loan, borrowers get assistance through housing programs to build, buy, repair, etc., to find a suitable home. There’s usually no down payment and the interest rate is typically lower with a VA loan.

Credit Line

A credit line can be used to borrow a specific amount using the equity on a home.

The amount borrowed can then be repaid and borrowed again. This allows for a more flexible loan, similar to a credit card.

Reverse Mortgage

If a homeowner is at least 62 years of age, they may be eligible for a reverse mortgage.

With this type of mortgage, a lender essentially pays the homeowner in advance based on their equity. These payments are typically tax-free but can leave the homeowner owing more over time. A reverse mortgage can be paid back with income from selling the home.

Commercial

A commercial loan is a type of financing given to companies to purchase or refinance a property for their business.

Construction

Construction loans are typically short-term loans used to cover a construction project until long-term funding is available.

A builder or a buyer can take advantage of this loan; however, interest rates are higher for construction loans since it is considered a “risky” investment.

Which Mortgage Loan Will You Choose?

Since each type of loan has unique criteria for who qualifies and who would benefit from the terms, it’s wise to look around before deciding on one.

With a little bit of research and careful consideration, you’re sure to find a great match. Ready to start finding off-market properties to bid on? Try using PropStream for 7 days free to find your next off-market lead!