1 Tax related
Mortgage types are actually simple. As you can see in the table below, there are several types, but simply put, they vary depending on how you prove your income. If your income can be proven with tax returns alone, it is Full Doc (QM, Qualified Mortgage); if not, it is Alt Doc (Non-QM).
The difference? A0.5-1% lower rate for Full doc.
2 Government-Backed Loans
FHA Loans
Designed mainly for younger buyers who want to purchase a home but haven’t saved enough for a large down payment.
The interest rate is slightly lower. However, you must pay an upfront mortgage insurance premium of 1.75%, and you are required to carry monthly mortgage insurance that never drops off if the downpayment is under 10%. If it is 10% or over, it will last for 11 years.
There are advantages as well. FHA allows a higher DTI, meaning you can qualify for a larger loan with a lower income. And the minimum FICO score requirement is only 580, which is a significant benefit.
However, it is highly recommended to save enough for a down payment and secure a conventional loan instead.
VA Loans
These are specialized loans exclusive to military service members and veterans. They feature completely different qualification guidelines, interest rates, and processing steps.
USDA Loans
These loans target specific rural areas. It does not apply to just any rural location; it is restricted to designated geographic zones and operates under a very distinct process.
3 ETC
Fixed vs. Adjustable Rates
The interest rate varies depending on whether it is fixed or adjustable. In certain market conditions, adjustable rates may be slightly lower.
Interest-Only Loans
With this program, you only pay the interest portion of the mortgage for a set period. However, since the principal balance remains untouched, your total interest charges do not decrease over time.