Buying a home can be overwhelming, but there are many different types of loans that are designed for a wide range of needs. Deciding on the type of mortgage early can help you decide what kind of home your can afford. Use this guide to explore your options and find the right loan for you.
Fixed Rate Mortgage
Best for: Buyers that are purchasing or refinancing their forever home.
A fixed rate mortgage is one with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change. These types of loans typically come in terms of 15 or 30 years. The benefit of this kind of mortgage is the predictability of the payments, allowing you to better plan your future finances and your monthly expenses more precisely.
Adjustable Rate Mortgage
Best for: Buyers who know they will be relocating in the near future, or who plan on paying off the loan in a few years.
Adjustable rate mortgages (ARM) give the buyer the opportunity to take advantage of low interest rates. Unlike fixed rate mortgages, ARMs have rates that can change with the market conditions, so there is risk involved in getting this type of loan. However, with risk there can be reward, in the form of potentially saving a substantial amount of money in your first few years of homeownership.
Best for: Buyers that plan on purchasing a home in a highly competitive market. Requires great credit, a high income, and a large down payment.
A Jumbo Mortgage is a loan that exceeds the limits set by the Federal Housing Finance Agency. These types of loans are common for high-end homes and allow buyers to borrow money to buy a home in a higher cost area. While the financing requirements are much more strict than conventional loans, buyers can potentially take advantage of lower interest rates.
Best for: Low Credit Score and Low Down Payment. The go-to loan program for buyers with weaker credit.
A Federal Housing Administration (FHA) loan is a mortgage that is insured by the FHA and issued by an FHA-approved lender (Vellum). FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
Best for: Military and Low Down Payment. No down payment loans for borrowers with a military connection.
Must meet one or more of the following requirements:
Served 90 consecutive days of active service during wartime
Served 181 days of active service during peacetime
Have 6 years of service in the National Guard or Reserves
You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability
Best for: First-time homebuyers and current homeowners who are thinking about buying in Areas of Economic Opportunity. 30-year fixed-rate mortgages. Down payment grants or federal tax breaks available.
First-time homebuyer’s household income can’t exceed the lower program limits
Grant funds may only be used with eligible VHDA loans
Buyers must have a ratified sales contract on the home before the grant funds can be reserved
Eligible VHDA first mortgage much be locked prior to reserving grant funds
Best for: Lown Down Payment and Rural 100% financing on rural properties
Types of loans
Single Family Housing Guaranteed Loan Program: for low to moderate income households located in eligible rural areas
Single Family Housing Direct Home Loans: for low and very-low-income households
Multi-Family Housing Direct Loans: financing for affordable multi-family rental housing for low-income, elderly, or disabled households in eligible rural areas
Must be a US citizen or legal permanent resident
Ability to prove creditworthiness (usually a score of 640 or higher)
Stable and dependable income
History of timely mortgage payments (generally at least 12 months of no late payments or collections)
Adjusted household income is less than or equal to 115% of the area median income
Property is the borrower’s primary residence and is located in a qualified rural area
Additional requirements vary by state and by loan. Visit USDA’s website for more information.