Which types of home loans & mortgage are available?
Many types of mortgage options are available depending on a borrower’s financial situation, needs and wants. It can be hard to narrow those choices, but a bit of knowledge can help you select the option that’s best for you.
A few mortgage options are conventional, government-backed and jumbo, with fixed- and adjustable-rate financing. All loan types can come with their own requirements and benefits.
If you have looked at all the types of mortgages that are right for you and have decided on one, you can begin your mortgage application online.
What are the main types of home loans?
These are a few popular mortgage types. Here’s how they can benefit you and why borrowers choose them.
Conventional
Conventional loans are backed by private lenders, such as banks or mortgage companies. These loans must meet guidelines set by government-sponsored enterprises like Freddie Mac or Fannie Mae.
Conventional loans have down payment options as low as 3%, and if you have a good credit score, you could qualify for lower interest rates. Loan terms and lengths are flexible for those who meet conventional loan qualifications. These types of loans can be used for primary, secondary or investment properties.
Government-backed home loans
Several government-backed mortgage options typically come with more flexible qualifications than conventional loans because they are insured by certain government agencies. These loans are FHA, VA and USDA loans.
Each of these government-backed loans come with their own requirements and benefits.
FHA
FHA loans are designed to help homebuyers, especially low- to moderate-income first-time buyers, purchase a home. These loans have loan amount limits based on area and neighborhood. They can help homebuyers secure financing even if they don’t meet the stricter requirements for conventional mortgages.
VA
VA loans insured by the U.S. Department of Veteran Affairs offer a 0% down payment option. To be eligible for this loan, you will have to meet the VA’s requirements for active or former military service members.
USDA
USDA loans are backed by the U.S. Department of Agriculture to assist borrowers in buying homes in rural and suburban areas defined by the USDA. These loans come with 0% down payment options in approved areas.
Jumbo
Homebuyers looking to get loans above certain national or county loan limits could consider jumbo loans.
Baseline amounts called conforming limits are national limits. High-balance loan limits change every year based on those factors in that area.
Because these mortgages come with larger loan amounts, the qualifications you need to meet tend to be tougher. Those looking to get jumbo loans should expect to have a credit score of at least 660, a debt-to-income (DTI) ratio of no more than 43% and meet the minimum down payment option of 10%.
What are the different types of mortgage rates?
Fixed-rate mortgage
A fixed-rate mortgage means that the interest rate borrowers pay on their mortgage will stay the same through the life of their loans. This allows a homeowner to better plan and budget for their monthly payments without surprises in their interest payments.
A fixed-rate mortgage works by offering those looking to buy a home consistent and predictable monthly payments on their home loan.
When borrowers get a fixed-rate mortgage, they will learn the rate they are approved for and will keep the rate for the life of their loan.
Adjustable-rate mortgage
An adjustable-rate mortgage (ARM) is an attractive kind of home loan, even though it can make it harder to plan for your future payments. As the name suggests, your mortgage rates with an ARM will adjust. Rates will change regularly according to where current rates are.
These mortgages are attractive because of their introductory periods with lower interest rates. These periods can last for five, seven or 10 years and will have slightly lower fixed rates to get borrowers accustomed to their monthly payments.
After this first period, rates will vary based on current interest rates as well as other structural and regulatory factors. This will make your future payments a little more unpredictable as your rates will change annually or every six months.
What is the difference between government and conventional loans?
A conventional mortgage is an agreement between the borrower and a bank, a mortgage company or other financial institution. These mortgages aren’t insured by the federal government and generally come with stricter qualifications that potential homebuyers must meet.
Qualifications for government-backed mortgages are typically less strict than conventional loans because the government takes on the task of recouping your loan should you fail to make payments.
Government-backed loans also come with more restrictions on the type of home you plan to purchase, generally limiting purchases to primary residences.
How do I choose the right type of home loan?
The right home loan is different for everyone.
The type of home you’re interested in, location, credit score and savings for a down payment will influence the type of mortgage you could qualify for.
Conventional loans work well for homebuyers with higher credit scores and a bit more saved for a down payment. You might get a lower mortgage interest rate and could avoid mortgage insurance with a conventional loan as well.
In general, government-backed loans will work well for a homebuyer, particularly a first-time buyer, interested in a primary residence. If you have a lower credit score and not much saved for a down payment, consider a government-backed loan. If you’re a military Veteran or are related to one, government-backed VA loans can be a particularly good choice.
Apply for a mortgage today to connect with a professional Loan Officer and learn more about your options. A trusted lender like Rate will guide you every step of the way.
With Rate's Same Day Mortgage,* you can begin your journey to homeownership with confidence and clarity.
*Rate’s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation to Rate within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. For purposes of this offer, documents provided after 1 pm local time or on a weekend or company holiday will be deemed submitted the next business day. Rate cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Rate reserves the right to revoke this approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation. Read and understand your Loan Commitment before waiving any mortgage contingencies. Borrower documentation and Intent to Proceed must be signed within 24 business hours of receipt. Not eligible for all loan types or residence types. Minimum down payment requirements apply. Not all borrowers will be approved. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Not available in all states. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
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