Which type of mortgage is right for me?
More often than not, your loan officer should be able to advise you on your mortgage options and help you identify the best possible mortgage for you. Still, it is important to do your homework and understand what makes each type of mortgage different, what the qualifications are and whether or not it is right for you.
Conventional Mortgage – Should have good credit and ability to put 3% down.
This loan is not backed by the federal government. If you have good credit and can put down 3% then you can typically qualify for this loan backed by Freddie Mac or Fannie Mae. These are enterprises sponsored by the government. They sell and buy nearly all conventional mortgages nationwide. If you want to avoid needing private mortgage insurance (PMI) you’re going to need to make at least a 20% down payment. However, some lenders do offer these loans with a lower down payment and no need for PMI.
VA Mortgage – Must be a veteran, service member, or military spouse.
This loan is specifically for veterans, service members, and military spouses. It requires zero percent down which is a great option for this select group. This means that 100% of the loan amount can be financed. You also get a cap on closing costs which is a major benefit. These loans are issued by private mortgage lenders and are always guaranteed by the U.S. Department of Veterans Affairs (VA). Keep in mind that this loan does require a funding fee to help offset taxpayer costs. You are not obligated to pay this funding fee if you have a service related disability and are a veteran receiving VA benefits, are a spouse of a veteran who part away in service, or are a veteran who would be entitled to receive VA benefits due to specifically a service related disability. You may also be able to opt out of paying funding fees if you are a veteran who did not receive active duty pay or any retirement.
FHA Mortgage – First-time home buyer and/or low down payment home buyers.
FHA stands for Federal Housing Administration. This loan is great for first-time home buyers or those who haven’t saved enough for a large down payment. With an FHA loan, borrowers can finance homes with down payments as low as 3.5%. Down payments are able this low because of the fact that Federal Housing Administration loans are government-backed. The benefits of this loan include being able to pay your mortgage at any time without prepayment penalties, many term options with fixed rates, and the option for a 5 year adjustable rate mortgage.
Jumbo Mortgage – Have good credit and need to finance a higher end property.
These loans surpass the loan servicing limitations put in place by Freddie Mac and Fannie Mae. This makes them non-conforming loans. In simpler terms, when a loan amount reaches a certain point, Jumbo Mortgages and Super Jumbo Loans can offer high-end financing that a traditional loan can’t. So, if you need to finance a high end property that is too expensive for a conventional loan, this is a good option for you.
Adjustable Rate Mortgage (ARM) – Ideal for lower credit score mortgage applications.
This loan is great if you have a low credit score. This mortgage typically offers interest rates lower than a fixed rate mortgage. Adjustable means that if overall interest rates rise, so will your monthly payment. Vice versa, if rates fall, your payment will decrease too.
USDA Mortgage – Candidates include those suffering a financial hardship and living in a rural area.
This loan is great if you are struggling financially and live in a rural area. It is a government sponsored loan. With this loan, the government can finance 100 percent of the home cost. This only goes for USDA eligible homes. Benefits include no down payment needed and better interest rates.
It’s very important you work with an experienced mortgage advisor that can guide you through the process. Your mortgage company should be able to advise you in selecting the right mortgage for your situation. This is something you will likely be paying long term, so finding a reputable mortgage company is extremely important.