What Type of Mortgage Should I Get?
It’s the question that every potential homebuyer has to ask themselves: which type of mortgage loan should I choose? With such a variety of loan options available, we’d like to take a few minutes to detail four of the most common types provided by Minute Mortgage so you can make the best and most informed decision when applying for your home mortgage.
First things first. Along with the type of loan you choose, you’ll need to consider how the interest rate is applied to that loan:
- Fixed-Rate: The most popular type of home loan because of stability and predictability — both interest rate and the monthly payment stays the same for the life of the loan. You’ll never have to worry about an increase in payments. Fixed-rate mortgages usually come in either 15-year or 30-year terms.
- Adjustable-Rate (ARMs) offer a lower interest rate and monthly payment for the first few years, but after those terms end, the interest rate and your monthly payment will change annually. (You can always refinance your loan to a fixed rate.)
Lenders use the term conventional to describe loans that are backed by private institutions and not by the government. Generally, conventional lenders require you to pay private mortgage insurance (PMI) when you put down less than 20 percent of the home’s purchase price.
Conventional loans can be up to $548,250 at the time of publishing, but even this amount is dependent on the county you are located in, and the changes made annually. Conventional loans are for:
- Primary, secondary, and investment properties
- Single-family residences (SFR), condos, manufactured homes, attached homes, multi-family homes
- First-time home buyers to seasoned investors
When you are purchasing a higher-priced home, your loan will be referred to as a jumbo loan. Whether or not you need a jumbo loan is determined by how much financing you will require and not by the purchase price of the property. Jumbo borrowers must have good to excellent credit, a larger income, and a substantial down payment.
A Federal Housing Administration (FHA) loan is one that is backed and issued by an FHA-approved lender. FHA loans can be a good — and maybe the only — option for first-time homebuyers who aren’t financially secure enough for a conventional mortgage. FHA loans are best for those who can’t afford a big down payment, have low credit scores, or have a higher debt-to-income ratio. The requirements for all three of those factors are more lenient with FHA loans as compared to conventional loans.
If you’ve served in the United States military, a Department of Veterans Affairs (VA) loan can be an excellent alternative to a conventional loan. VA loans offer up to 100% financing on the value of a home for service members, veterans, and eligible surviving spouses. The loans are provided by private lenders, but the VA sets the qualifying standards, dictates the terms of the mortgages offered, and guarantees a portion of the loan.
Once you’ve done your homework and nailed down a budget, down payment amount, and reviewed your credit, you’ll have a better idea of what loan you will want to get. But no matter what, we’re here for you: Minute Mortgage can help before, during, and after your loan application, home buying, or refinancing process.