Are you feeling a bit overwhelmed when it comes to all the different types of mortgages that you can get? If so, it will help to break down the four types of mortgages to help you make an informed decision.
1. Conventional Loan
A conventional mortgage is a very common type of mortgage product but it has more strict requirements when it comes to credit scores, employment history, and higher down payment. While you can get by with a down payment that meets the minimum requirements from your lender, you'll want to aim for having 20% down to avoid paying private mortgage insurance (PMI) and get a better interest rate. This can easily save you a couple of hundred dollars per month as a borrower.
2. FHA Loan
What makes an FHA loan different is that it has flexible guidelines that allow for a lower credit score than a conventional mortgage. FHA loans also require a 3.5% down payment in most situations, though those with poor credit will need a bigger down payment of around 10%. Thankfully, you can use a gift from a family member for the down payment if necessary. Employment requirements are not as strict as conventional loans and are designed to make homeownership possible. You will have to pay PMI with this type of loan with a small down payment but it may be your only option.
3. VA Loan
If you qualify for a VA loan through your service with the armed forces, it is definitely worth looking into a VA loan. It has more relaxed credit requirements than a conventional loan but not as low as the FHA loan requirements. There is no required down payment and no PMI that has to be paid as well. Interest rates also tend to be a bit lower than conventional mortgage rates, which can help with the long-term savings of the loan.
4. USDA Loans
It is worth checking on the area that you are purchasing a home because you may be eligible for a USDA loan. These loans have a bit more favorable terms compared to an FHA loan when it comes to PMI and credit requirements but the home must be located in an eligible USDA area. If you are looking into a rural area, this may be another option for you to make homeownership possible.
Reach out to your mortgage lender for more information about home loans.Share
19 April 2021
I always wanted to buy my own home and after saving enough money for a down payment, I decided that it was time. Before I started looking at houses, I talked with a loan officer about financing. I wanted to know how much money I could borrow so I could look at houses in that price range. I was very happy after my meeting at the loan company and I was ready to start house hunting. My name is Jarod Spangler and I'm now a homeowner. If you have the dream of owning your own home, I think you'll find my blog of help to you. I've documented my journey of saving money, securing a loan and purchasing a house. To help you become a homeowner too, I'm offering advice and tips of things that I've learned along the way.