After you find your dream home, it is likely you will have to acquire a mortgage in order to purchase the home. Picking the right mortgage for you and your family is a daunting task, especially if you are a first-time home buyer. It is important you shop around and research your mortgage options just like you did when looking for a house to buy.
There are five general categories of mortgages:
- Conventional mortgages
- Jumbo mortgages
- Government-backed mortgages (VA mortgages)
- Read our VA loan blog to see if you qualify and if the loan would be right for you.
- FHA mortgages
- USDA mortgages
Conventional and government-backed mortgages are the two most common types of mortgages.
Conventional mortgages are available from private lenders like mortgage companies, online lenders, banks, and credit unions. Conventional mortgages come with fixed or adjustable rates with 15- or 30-year terms and an average of a 10% down payment. A fixed rate mortgage has a fixed interest rate that doesn’t change throughout the life of the mortgage. Adjustable or varied rate mortgages have a lower starting interest rate, but it increases over time.
Jumbo loans are types of conventional mortgages that exceed a certain dollar amount. At the end of 2018, if you borrowed over $453,100, you needed a jumbo loan.
Government-backed mortgages are available at lower interest rates with down payments as small as 3.5%. These mortgages also have lower minimum credit score requirements. VA loans are available with little to no down payment.
FHA mortgages are government-backed loans. If a borrower defaults on their FHA mortgage, the Federal Housing Administration will repay the remaining amount to the lender. These loans are available to individuals with lower credit scores. FHA mortgages offer down payments as low as 3.5% with low interest rates. Keep in mind a lower down payment means borrowing more money and will likely result in more money paid over time.
USDA mortgages are government-backed loans offered with 0% down payments. USDA mortgages can be obtained from private lenders and are guaranteed by the United States Department of Agriculture. These mortgages are available for individuals purchasing a home in a qualifying rural area. USDA mortgages are meant to stimulate economic growth in rural and suburban areas.
Mortgages are like buying shoes; one size does not fit all. It all comes down to personal comfort, eligibility, and ability. After you evaluate your personal situation, choosing a home loan will be much easier.
Here are some questions to start your mortgage selection thought process:
- How much money can you borrow?
- How much money can you put down for your down payment?
- Do you want a fixed or variable rate?
- Long-term or short-term loan?
- How long do you plan to live in the home?
If you’re confused, talk to your real estate agent. They’re there for your benefit.