The mortgage market is diverse. Besides the standard fixed-rate and adjustable-rate mortgages and FHA-insured home loans, there are other types of mortgages.
A jumbo loan is a mortgage that’s too big to be bought by mortgage giants Fannie Mae and Freddie Mac. In much of the country, the limit is $417,000. In expensive housing markets, such as Los Angeles, that number is higher. It maxes out at $625,500.
Jumbo mortgage rates generally are higher than rates on loans under the limits, called conforming loans.
A balloon mortgage has regular monthly payments for a few years, and then the remaining balance has to be paid off in a lump sum. Generally, balloon mortgages are available only in rural areas.
With a balloon mortgage, you might make the monthly payments as if it were a 30-year loan. But the remaining balance would have to be paid in a lump sum after five, seven or 10 years, or some other agreed-upon period. You would be expected to refinance if you don’t have enough cash to pay off the mortgage.
Assumable mortgages are rare. A homeowner with an assumable loan can hand off the loan to a buyer instead of paying it off using proceeds from the home sale.
Construction loans help people who want to build homes rather than buy existing ones. They typically feature a two-step borrowing process. During construction, money is paid periodically to contractors as they complete work, and you pay interest on the outstanding amount.
After the house is completed, the loan is converted into a permanent loan — usually, a standard fixed-rate or adjustable-rate mortgage.
Seller financing is an agreement in which the seller of the home provides financing to the buyer. The buyer makes monthly payments to the seller instead of the bank. A promissory note is secured by the property. This type of financing often includes an assumable mortgage.