Common Types of Mortgages

No two home buyers are alike, so the best loan program for one buyer may be unsuitable or unavailable to another. It’s up to the buyer (with our help!), to make the right call based on these and other questions:

•Which loan has the lowest monthly payment?

•What option requires the least amount upfront?

•What will cost me less over time?

•Which loan type is suitable for my credit score?

•How does my income affect the products for which I’m eligible?

There is no “right” answer to the question, “Which loan type is best?”.
The best answer is, “it depends.” That’s why today’s home buyer is fortunate to have access to multiple programs. There are no “bad” mortgage programs, just ones that do and do not fit a specific situation. Below are some highlights to detail what loan program might be the best option.

Conventional loans are the go-to choice for many home buyers today. They offer great rates, many down payment options, and flexible terms. Many conventional loans are often known as “conforming loans” because they conform to lending standards and offer the following advantages:

Down payments as low as 3%
No upfront/monthly mortgage insurance with a down payment of 20% or more
Available for a primary residence, a second home, or investment property
Fixed and adjustable rates are available with many loan lengths, typically between 10 and 30 years
Unlike FHA, mortgage insurance goes away with 20% home equity
Loan amounts up to $766,550 and more in high-cost counties

FHA loans are the “go-to” loan for 40 percent of today’s younger home buyers. Their popularity is understandable. With small down payment requirements, ultra-lenient credit score standards, and flexible income guidelines, the FHA mortgage makes homeownership available to many buyers. Benefits include:

3.5% down payment requirement
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

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; no monthly mortgage insurance is required. Buyers with any type of U.S. military service background should consider this loan first. Advantages include:

Very low mortgage rates
15- and 30-year fixed loans available
Absolutely no down payment is required
No mortgage insurance
Very lenient about credit scores

The USDA mortgage is known by many names: the Rural Development (RD) loan, the 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 offers 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
Must be a home within USDA-eligible areas (about 97% of U.S. land mass)

Plan to live in your home less than 10 years? An adjustable-rate mortgage (ARM) might be right. 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

What if it is an expensive area? Conventional loans generally allow generous loan limits up to $726,200 — and higher in many areas — but even that amount is not enough in some high-cost communities. A non-conforming loan, also known as jumbo financing, falls outside of many stated loan limits.

Mortgage rates comparable with those of conforming loans
Fixed rates and ARMs available
Loan amounts in the millions are common

Conventional loans are the go-to choice for many home buyers today. They offer great rates, many down payment options, and flexible terms. Many conventional loans are often known as “conforming loans” because they conform to lending standards and offer the following advantages:

Down payments as low as 3%

No upfront/monthly mortgage insurance with a down payment of 20% or more

Available for a primary residence, a second home, or investment property

Fixed and adjustable rates are available with many loan lengths, typically between 10 and 30 years

Unlike FHA, mortgage insurance goes away with 20% home equity

Loan amounts up to $766,550 and more in high-cost counties

3.5% down payment requirement

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

Very low mortgage rates

15- and 30-year fixed loans available

Absolutely no down payment is required

No mortgage insurance

Very lenient about credit scores

The USDA mortgage is known by many names: the Rural Development (RD) loan, the 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 offers 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

Must be a home within USDA-eligible areas (about 97% of U.S. land mass)

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

What if it is an expensive area? Conventional loans generally allow generous loan limits up to $726,200 — and higher in many areas — but even that amount is not enough in some high-cost communities. A non-conforming loan, also known as jumbo financing, falls outside of many stated loan limits.

Mortgage rates comparable with those of conforming loans

Fixed rates and ARMs available

Loan amounts in the millions are common