3 Types of Mortgage Loans – COMPARED

Buying a home can be pretty exciting, but figuring out the financing can be overwhelming. Fortunately, choosing the right mortgage loan is not all that hard once you are aware of the common types. Here’s a quick comparison of 3 of the most common types of mortgage loans available right now. 

Conventional Mortgages

Conventional mortgage refers to a home loan that has not been insured by the federal government. These loans can be of two types: conforming loans and non-conforming loans. If your loan amount falls within the limits specified by the Federal Housing Finance Agency, you will qualify for a conforming loan. However, if the loan limit doesn’t meet these guidelines, they will be considered non-conforming loans.  The best thing about conventional mortgages is that you can use them for a primary home, second home, or even if you are buying property for investment purposes. Further, if the loans are backed by Freddie Mac or Fannie Mae, you can pay as little as 3 percent for the down payment. The downside is that your credit score has got to be above 620 to qualify for this loan. 

Jumbo Mortgages

These mortgage loans are essentially a type of conventional mortgage loan, but they have non-conforming loan limits. Simply put, if you are looking to purchase a home and the price of the property exceeds the federal loan limits, you will need to apply for a jumbo loan. Jumbo loans are typically more common in areas where property prices are high.  The perk of a jumbo loan is that you can choose to borrow more money if you are buying a home in an expensive area. The interest rate, contrary to what many people believe, is also quite competitive. The downside is that you will need to make a minimum down payment of at least 10% to 20% of the purchase price of the home. Further, you will need to have a FICO score of over 700. 

Government-Insured Mortgages

While the U.S. government does not lend money to people to purchase homes, it does help many Americans become homeowners by backing certain loans like the FHA loan, USDA loan, and the VA loan. FHA loans are meant for homebuyers who don’t can’t make a large down payment and don’t have an excellent credit score. USDA loans are meant for people who are looking to purchase property in rural areas, while VA loans are ideal for members of the U.S. military and their families, and veterans. These loans usually have very affordable rates.