Which Type of Home Loan is Right for You?

A couple sitting on a couch signing papers with a real estate agent.

WHICH TYPE OF HOME LOAN IS RIGHT FOR YOU?

Today’s home buyer is fortunate enough to have access to multiple programs. There are no “bad” mortgage programs, just ones that do and do not fit your situation. This article will serve to help get you started on figuring out which loan program might be your best option. At the end of the day, you want something that will help you buy a house affordably. How you get there is secondary.

Conventional Loans: Conventional loans are the go-to choice for many home buyers today. They offer great rates, many down payment options and flexible terms. These loans are often referred to as ‘conforming loans’ because they conform to standards set by the homebuyer. They offer the following advantages:

  • Down payments as low as 3%
  • No upfront or monthly mortgage insurance with a down payment of 20% or more
  • Fixed and adjustable rates available with many loan lengths between 10 to 30 years
  • Unlike FHA, mortgage insurance is cancelable with 20% home equity
  • Loan amounts up to $548,250 and more in high-cost counties

FHA Home Loans: FHA loans are the favorite loan for about 40% of today’s younger home buyers. It’s easy to see why, with small down payment requirements, ultra-lenient credit score standards, and flexible income guidelines, the FHA mortgage is making homeownership available to a wide range of families. Benefits include:

  • Down payments as low as 3.5%
  • Credit scores as low as 580 for the minimum down payment
  • Down payment gifts can cover 100% of the down payment and closing costs
  • Lenient income qualification

VA Loans: Home buyers with eligible military service history can qualify for a 100% (zero-down) loan backed by the U.S. Department of Veterans Affairs. This option offers lower rates than “standard” loans, and there is never any monthly mortgage insurance required. Buyers with any type of U.S. military service in their backgrounds should consider this loan first. Advantages include:

  • $0 own payment required
  • Very low mortgage rates
  • 15 and 30-year fixed loans available
  • No mortgage insurance
  • Very lenient with credit scores

USDA Loans: The USDA mortgage goes by many names: the Rural Development (RD) loan, Single Family Housing Guaranteed program, or most commonly, the USDA loan. This product targets home buyers who plan to live in rural and suburban areas. It joins forces with banks and mortgage companies to offer zero down payment loans to moderate-income applicants. Some highlights:

  • Low mortgage insurance fees
  • Lenient credit score and income requirements
  • Applicants must meet income limits
  • Buyers must purchase a home within USDA-eligible areas (about 97% of U.S. land mass)

Adjustable-rate mortgages: Plan to live in your home less than 10 years? An adjustable-rate mortgage (ARM) might be right for you. These loans come with lower rates than the 30-year fixed option. Yet, the rate is still fixed for a certain amount of time — usually 5, 7, or even up to ten years. It saves the buyer considerable amounts over that time. Plus, it comes with built-in safeguards — called “caps” — that limit the amount the rate can rise after the initial period.

  • Get an ultra-low rate for up to 10 years
  • The loan starts off with a fixed rate, then adjusts
  • Saves thousands in interest over the first few years of the loan
  • Allows enough time to sell the home or refinance before the first adjustment

WHICH TYPE OF HOME LOAN IS RIGHT FOR YOU?

Today’s home buyer is fortunate enough to have access to multiple programs. There are no “bad” mortgage programs, just ones that do and do not fit your situation. This article will serve to help get you started on figuring out which loan program might be your best option. At the end of the day, you want something that will help you buy a house affordably. How you get there is secondary.

 

Conventional Loans: Conventional loans are the go-to choice for many home buyers today. They offer great rates, many down payment options and flexible terms. These loans are often referred to as ‘conforming loans’ because they conform to standards set by the homebuyer. They offer the following advantages:

  • Down payments as low as 3%
  • No upfront or monthly mortgage insurance with a down payment of 20% or more
  • Fixed and adjustable rates available with many loan lengths between 10 to 30 years
  • Unlike FHA, mortgage insurance is cancelable with 20% home equity
  • Loan amounts up to $548,250 and more in high-cost counties

 

FHA Home Loans: FHA loans are the favorite loan for about 40% of today’s younger home buyers. It’s easy to see why, with small down payment requirements, ultra-lenient credit score standards, and flexible income guidelines, the FHA mortgage is making homeownership available to a wide range of families. Benefits include:

  • Down payments as low as 3.5%
  • Credit scores as low as 580 for the minimum down payment
  • Down payment gifts can cover 100% of the down payment and closing costs
  • Lenient income qualification

 

VA Loans: Home buyers with eligible military service history can qualify for a 100% (zero-down) loan backed by the U.S. Department of Veterans Affairs. This option offers lower rates than “standard” loans, and there is never any monthly mortgage insurance required. Buyers with any type of U.S. military service in their backgrounds should consider this loan first. Advantages include:

  • $0 own payment required
  • Very low mortgage rates
  • 15 and 30-year fixed loans available
  • No mortgage insurance
  • Very lenient with credit scores

 

USDA Loans: The USDA mortgage goes by many names: the Rural Development (RD) loan, Single Family Housing Guaranteed program, or most commonly, the USDA loan. This product targets home buyers who plan to live in rural and suburban areas. It joins forces with banks and mortgage companies to offer zero down payment loans to moderate-income applicants. Some highlights:

  • Low mortgage insurance fees
  • Lenient credit score and income requirements
  • Applicants must meet income limits
  • Buyers must purchase a home within USDA-eligible areas (about 97% of U.S. land mass)

 

Adjustable-rate mortgages: Plan to live in your home less than 10 years? An adjustable-rate mortgage (ARM) might be right for you. These loans come with lower rates than the 30-year fixed option. Yet, the rate is still fixed for a certain amount of time — usually 5, 7, or even up to ten years. It saves the buyer considerable amounts over that time. Plus, it comes with built-in safeguards — called “caps” — that limit the amount the rate can rise after the initial period.

  • Get an ultra-low rate for up to 10 years
  • The loan starts off with a fixed rate, then adjusts
  • Saves thousands in interest over the first few years of the loan
  • Allows enough time to sell the home or refinance before the first adjustment

MORTGAGE CALCULATOR

$

10%

2%

7%

$1421

Monthly Payment

Principal & Interest $1421

Monthly Taxes $1421