Types of Loans Flashcards
(10 cards)
FHA Loan
A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA’s regulations.
A part of HUD (Department of Housing and Urban Development).
The government does not lend money, but insures the lender against default.
Designed to help low- to moderate-income borrowers and first-time homebuyers. best for people with low credit scores.
Borrowers with larger down payments and higher credit scores are most likely to select what type of mortgage?
Conventional
What is a conventional loan?
It’s a regular mortgage you get from a bank.
You usually need a good credit score and a stable income.
You often need to put down at least 3% to 20% of the home’s price as a down payment.
Because it’s not government-insured (like FHA or VA loans), the lender takes more risk—so the requirements can be a bit stricter.
What is a VA loan?
A VA loan is a type of home loan backed by the U.S. Department of Veterans Affairs that’s only available to eligible veterans, active-duty service members, and some military spouses.
In simple terms:
It lets you buy a home with no down payment.
You don’t need private mortgage insurance (PMI).
It usually has lower interest rates than other loans.
The VA guarantees the loan, so lenders are more flexible with credit and income requirements.
What is a balloon payment loan?
A balloon payment loan is a type of loan where you make small or interest-only payments at first, but then have to pay a large lump sum (the “balloon”) at the end of the loan term.
In plain terms:
You make low monthly payments for a few years.
At the end, you owe a big one-time payment to pay off the rest of the loan.
It can be risky if you’re not ready to pay that big final amount or can’t refinance.
What is an adjustable rate loan?
A loan where the payment and interest rate are locked for the first five years, then the interest rate is adjusted based on the behavior of the economic index it’s associated with and changes each year.
What is a bridge loan?
A bridge loan is a short-term loan that helps you “bridge the gap” between buying a new home and selling your current one.
In simple terms:
It gives you money upfront to buy a new home before your old one sells.
You use the equity in your current home as collateral.
Once your old home sells, you pay off the bridge loan with the proceeds.
What is a land contract?
A land contract is a way to buy a home without going through a bank or getting a traditional mortgage.
In plain terms:
The seller acts like the bank and lets you make monthly payments directly to them.
You don’t get the official ownership (the deed) until you’ve fully paid off the property.
It’s sometimes called “owner financing” or “contract for deed.”
It can be easier to qualify for, but it also comes with more risk for the buyer—like losing the home if you miss payments.
It’s often used when buyers can’t get approved for a regular loan.
What is a purchase money mortgage?
A purchase-money mortgage is a loan you get from the seller of the home, instead of a bank, to help you buy the property.
In simple terms:
The seller gives you the loan to buy their home.
You make monthly payments to the seller, not a bank.
It’s often used when the buyer can’t qualify for a traditional mortgage.
The terms (like interest rate and down payment) are negotiated between you and the seller.
It’s similar to a land contract, but with a legal mortgage recorded, which gives the buyer more protection.
What is the difference between a land contract and a purchase money mortgage?
A purchase-money mortgage gives you legal ownership from the start and offers more protection.
A land contract is more informal, and the seller keeps ownership until the end, which can be riskier for the buyer.
