Not every mortgage is right for every person. Because of this, there are a variety of home loans to learn and understand. If you're on the hunt for a home, learn about the different home loans available and which one might work best for you.
What it is: A conventional loan is a loan that isn't backed by a government agency. These are the most common type of loan. Conventional loan terms come in 10-, 15-, 20- and 30-year terms, with 30-year terms being the most popular option.
What it is: An FHA loan is backed by the Federal Housing Administration, which provides mortgage insurance to lenders who provide FHA loans. It's the largest mortgage insurer in the world. Loans are administered by FHA-approved lenders. This can be local banks, credit unions and online lenders. Loans come in 15- and 30.
What you need: To secure a 3.5% down payment rate, your credit score will need to be 580 or above. If it's below 580, you can still qualify, but you'll need at least a 10% down payment. For down payments of less than 20%, your loan will require private mortgage insurance. PMI protects the lender just in case you default on your loan. PMI will get removed from your mortgage payments once you have at least 20% equity in your home.
Who should skip it: Borrowers who aren't in the military, obviously. VA loans are only good on primary residences so if you need funding for a second home or investment property, you'll need to look at other .
What it is: USDA loans are funded by the US Department of Agriculture. They're available in specific regions across the country. They're made for borrowers in mostly rural areas who might not otherwise qualify for a traditional loan. Loans are backed by USDA-approved lenders (similar to FHA-backed loans). You can check to see if you'd qualify by .Fixed-rate loans: These are the most common type of loan within a conventional mortgage. Fixed-rate loans means you'll pay the same interest rate every month for the life of the loan. The only time your interest rate will change is if you refinance your mortgage.Adjustable-rate mortgages: ARMs have a fixed interest for a set amount of time and then the interest rate fluctuates periodically. They usually start out lower than standard fixed-rate mortgages but can change over time based on a benchmark. A 5/1 ARM means the first five years have a fixed rate and then a variable interest rate that changes every year after that.Jumbo loans: This is a mortgage that finances a property that's too expensive for a traditional loan. The qualifications for jumbo loans tend to be more strict. For most lenders, you'll need a credit score of at least 700 and usually a 20% down payment. Jumbo loans start where conforming loans end, which is different depending on where you are. Jumbo loans () can have fixed or adjustable rates. Balloon mortgages: This is a mortgage that has low or no monthly payments for a set amount of time and then eventually a large, lump-sum final payment, usually after five or seven years. These types of loans are risky; you'll owe a lot of money at the end of your loan and if you can't pay it off, you could lose your home.
As you're shopping around for home loans, explore the ones that are a good fit for your financial situation. If you qualify for government loans, those might be a better option than a conventional loan. If you'd like to buy an investment property, however, a conventional loan may work better for you.