Many types of mortgage loans exist, and they are designed to appeal to a wide range of borrowers’ needs. For each type of mortgage listed below, you’ll see its advantages and the kind of borrower it’s best for.
FHA Mortgage
An FHA mortgage is a home loan insured by the Federal Housing Administration. FHA loans are backed by the government and designed to help borrowers of more modest means (meaning lower credit scores and a down payment less than 20%) buy a home.
- Allows down payments as low as 3.5%.
- Credit scores as low as 620 can qualify.
- Mortgage insurance premium payments are required.
VA Mortgage
VA loans are mortgages backed by the Department of Veterans Affairs and are available to military service members and veterans. These are best for military-qualified borrowers who appreciate a low interest rate and no down payment minimum.
- 100% loan and no down payment required.
- Credit scores as low as 620 can qualify.
- Upfront VA funding fee required.
- No mortgage insurance.
USDA Loans
USDA home loans are mortgages backed or issued by the U.S. Department of Agriculture. These are best for income-qualified buyers in rural and some suburban areas who want a low or zero down payment.
- No down payment is required on most properties.
- Credit scores as low as 620 can qualify.
- Home improvement loans and grants are also available.
- Income limits and property value caps apply.
Conventional Loans
A conventional loan is a type of mortgage that isn’t backed by a government agency. You generally need a credit score of at least 620 to qualify for a conventional loan. Depending on your financial status and the amount you’re borrowing, you may be able to make a down payment that’s as low as 3% with a conventional loan. (Although be aware that a higher down payment may help get you a lower rate.)
- Can borrow up to 97% loan to value for first time home buyer and up to 95% loan to value for all other buyers.
- Can be used for a second home or an investment property.
- More control over mortgage insurance: If your down payment on a conventional loan is less than 20%, you’ll have to get private mortgage insurance. After your principal loan balance drops to 78% of the home’s value, however, you can ask to cancel your PMI. In contrast, mortgage insurance premiums on FHA loans can last for the life of the loan.
- More choices in loan structure: Though 30-year fixed-rate conventional mortgages are the most common, you can find other terms (like 15- or 20-year loans) as well as adjustable-rate mortgages. Since lenders don’t have to stick to government-prescribed programs, they can create more options.
Which Conventional Loan Is for Your Situation?
30-Year Fixed-Rate Mortgage
Home buyers who want the lower monthly payment that comes from stretching out repayment over a long time. The fixed rate makes the payment predictable. A 30-year fixed offers flexibility to repay the loan faster by adding to monthly payments.
15-Year Fixed Rate Mortgage
Refinancers and home buyers who want to build equity and pay off the loan faster. Payments are predictable because the interest rate doesn’t change. Because the borrower pays interest for fewer years, total interest payments are less.
Adjustable Rate Mortgage
Home buyers who don’t plan on having the mortgage for a long time, or who believe interest rates will be lower in the future.
Talk It Out
Sometimes all it takes is sitting down with a mortgage expert and chatting about your goals and qualifications before you can make a decision. There may even be down payment assistance programs or first time home buying grants that you’re unaware of and having someone with your best interest will point it out.
Schedule a free consultation with our mortgage team today and we’ll ensure the home buying process goes as smoothly as possible.
