With so many different types of loans out there, it can be confusing where to start. Here are some of the most common types of mortgage loans and what you can generally expect with each one. An independent mortgage broker like The Mortgage Source can help make sure you get the right loan for your unique situation, along with the best rate and closing cost for you.
Conventional mortgage loans are the most common type of home loan, and are available to anyone who qualifies. This type of loan requires a good credit score to qualify, and a score of around 740 or higher to get a good rate. Conventional mortgages also require a sizeable down payment of between 3 to 20 percent, depending on your credit and the lender. This type of loan usually has a term of 15, 20, or 30 years. The Mortgage Source can also offer conventional loand with no mortgage insurance.
A conventional mortgage isn’t insured by the federal government if the home buyer defaults on their loan, so it poses a higher risk for the lender and means you’ll have to put more money down up front. But if you can qualify for a conventional mortgage and afford the down payment, this type of loan usually has the best rates and lower monthly payments. Conventional loans are typically offered by banks, private lenders, credit unions, or other private institutions, and an independent mortgage broker can shop around at the different private entities to find the best deal for you.
If you’re a first-time home buyer, or you don’t have good enough credit to qualify for a conventional mortgage, an FHA loan may be right for you. This type of mortgage loan is insured by the Federal Housing Authority (hence the name “FHA”), and protects the lender if the home buyer defaults on their loan. Because of this insurance, FHA loans typically have a lower down payment requirement. With an FHA loan the minimum down payment is 3.5 percent.
To qualify for an FHA loan, you typically need a credit score above 620, and the higher your score, the better your rate. Interest rates for FHA loans aren’t quite as good as those for conventional loans, but it’s much more forgiving when it comes to credit scores. To get an FHA mortgage loan, you have to go through an FHA-approved lender. When it comes to FHA mortgage loans, different lenders offer varying rates and costs for the same loan, so it’s very important to shop around. Typically, an independent mortgage broker like The Mortgage Source can get you the best rate.
If you’re a veteran, reservist, member of the military or National Guard, or the spouse of a military member who died during service, you may be eligible for a VA loan. This type of loan is insured by the U.S. Department of Veteran Affairs and is available to veterans and active service members who qualify. VA loans can only be used for purchasing a primary home.
VA loans are easier to qualify for than conventional mortgage loans, and do not have a minimum credit score requirement. However, individuals lenders usually require a minimum credit score of 580. VA loans can also be obtained with no down payment, but there is still a one-time fee. This type of loan can usually offer borrowers a lower monthly payment, as well. As with other types of loans, working with an independent mortgage broker will typically allow you to get the best rate for your unique situation.
While conventional, FHA, and VA loans are the most common type of home mortgage loans, there are several more options out there that your mortgage broker can discuss with you. Similar to the FHA and VA loans, which are insured by government entities, the USDA offers home loans for little or no down payment for qualified home buyers in rural or suburban areas. There are also ARMs, or adjustable rate mortgages, which have low starting rates that rise over time. However these can be dangerous if rates go up faster than you’re prepared to pay. For more information on these and all loan types, contact The Mortgage Source or another independent mortgage broker.