When you’re buying a home, you may initially feel overwhelmed by the many different types of mortgage loans. It’s a lot to think about! But paying attention to your monthly budget, down payment amount, and credit score gives the best idea of which loan works for your situation.
Deciding which mortgage loan type fits your needs is easier knowing a breakdown of each. Read below for details on some of the most common types of mortgages, how they work, and why they could be the best choice for you.
Conventional loans are your match if you have a strong credit history, stable employment history, minimal debt, and enough funds to put down at least 5% to 20%. They can be used to finance most properties. These types of mortgage loans are not insured or guaranteed by the federal or state government.
At Wasatch Peaks, we offer both fixed-rate and adjustable-rate mortgages. These are among the most common types of mortgage loans. These mortgages allow you to secure a fixed rate for 15- or 30-year loan programs. There are often fewer closing costs, flexible monthly payment terms, and no mortgage insurance with a 20% down payment or more.
Related: 15 Year vs. 30 Year Mortgage
A jumbo loan is a mortgage loan that exceeds the conventional limit of $647,200 in most states. This type of mortgage loan takes longer to close and it has to go through two underwriting processes. In some cases, it might require two appraisals.
Securing a jumbo loan makes the most sense if you’re looking to finance a high-end home. You’ll want to have excellent credit, a high income, and a significant down payment. As a reminder, a jumbo loan is determined solely by how much financing you need, not by the purchase price of the property.
The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. These loans are protected by mortgage insurance, making it easier to offer more flexibility for qualifying.
Three government agencies back mortgages: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans), and the U.S. Department of Veterans Affairs (VA loans).
Federal Housing Administration (FHA)
FHA loans are backed by the Federal Housing Administration. They’re a great option if you prefer a smaller down payment and have a lower credit score. FHA loans are ideal for someone purchasing their first home. However, FHA loans are available to any buyer seeking a government-backed mortgage whether or not you’re a first-timer.
Homebuyers seeking this type of mortgage loan typically have an easier time with flexibility in qualifying as well. Advantages of FHA loans include lower down payments, flexible eligibility requirements, and lower monthly payments.
U.S. Department of Agriculture (USDA)
You must purchase a home in a USDA-eligible area and meet certain income limits to qualify for this type of mortgage loan. These loans don’t require a downpayment and offer highly competitive interest rates. They also permit gifts or grants from family, friends, and non-profit agencies if you choose!
You won’t be surprised at the closing table considering there aren’t any post-closing reserves or minimum investment required either. USDA loans strive to improve the economy and encourage growth in more rural areas.
U.S. Department of Veterans Affairs (VA)
VA loans provide flexible, low-interest mortgages if you’re a member of the U.S. military (active duty or veteran). They don’t require a downpayment and closing costs may be paid by the seller.
A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing.
No mortgage insurance is required with VA loans and gifts are accepted toward closing costs. These types of mortgage loans tend to offer the best terms and most flexibility compared to other loan types if you’re qualified.
Choosing the Best Type of Mortgage Loan for Your Needs
Purchasing or refinancing a home is a major decision. Whether you're buying your first home, making the next move, or simply refinancing an existing mortgage, Wasatch Peaks Credit Union offers a full range of mortgage loan options to fit your needs.
Read below for the best tips toward being a competitive buyer in the market!