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There are a wide variety of types of home loans on the market today. Lenders are always coming up with new loans to attract new groups of homeowners. The beginning steps of the loan process (looking at the different types of home loans and picking one) are critically important and you should thoroughly understand the advantages of each type of loan before making your final decision.

In an oversaturated market such as the mortgage market you will always see crazy loan programs in which everyone qualifies. There are even 1% starter loan rates that are called neg-ams and then 40 or 50 year loans that take a long time to pay off.

Many potential homeowners are looking to lock in 100% financing these days due to the fact that they have little to no assets to put as down payment for the property. When a prospective homeowner does not even have enough money for a down payment then this is deeply concerning. It is questionable as to whether these people should even consider owning a home in their current financial situation.

However, there are ways to reduce your risk of becoming another subprime statistic. Proper research is key when trying to pick between the types of home loans, after all, knowledge is power. So now that you know the importance of proper research, let us explore the different types of home loans available.

Before we talk about specific loan programs it would be beneficial to explain the different overarching groups of loans. Any loan that is under $417,000 is defined as a conforming loan while loans that are over $417,000 would be considered a jumbo loan.

A conforming loan is also known as a conventional loan and this is was determined by Congress, the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC). The interest rate on a home loan is directly correlated with the size of the loan, so a conventional loan would have a better interest rate than a jumbo loan. In some cases, dropping the loan amount just a few thousand dollars can lower the interest rate substantially.

Now that we have talked a little bit about the general loan types we can talk about the more specific types of home loans. Most mortgages that you will see are 30 year amortization. These types of home mortgage loans are fixed for 30 years. This means that the loan will take 30 years to pay off and that the interest rate will remain the same during that 30 year time. Another common loan is a 15 year fixed loan. This loan is exactly the same as the 30 year fixed variation, except for the fact that it takes half as long to pay off.

The other most popular type of home loan is the adjustable rate mortgage (ARM). With this type of loan you will be required to pay the current interest rate, whether it be higher or lower than the rate you singed up with. The advantage to these types of loans is that if the monthly interest rate gets to be too high and you can’t afford it then you have the option of only paying interest for that month. It is for this reason that this type of loan is so popular these days.