Understanding Different Types of Mortgages

There are many types of mortgage options available depending on a borrower’s financial situation, needs and wants. But with so many mortgage options, it can be hard to narrow your choices. 

A few mortgage options are conventional, adjustable rate, government-backed, jumbo and construction. All options can come with their own requirements and benefits. Here are a few reasons for why borrowers choose these options.  

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. 

These are a few popular mortgage types, and here’s how they can benefit you and why borrowers choose them. 

Conventional loans are backed by private lenders, such as banks or mortgage companies. These loans are not government-backed but must meet guidelines set by government enterprises, like Freddie Mac or Fannie Mae. 

Conventional loans have down payment options as low as 3%, and if you have a strong credit score, you could qualify for lower interest rates. Loan terms and lengths are flexible for those who meet a conventional loan’s qualifications. These types of loans can be used for primary, secondary or investment properties. 

Because these loans aren’t backed by the federal government, some of the qualifications can be a little stricter for some. Down payment options lower than 20% will require private mortgage insurance (PMI), which can add to your monthly payments. 

An adjustable-rate mortgage (ARM) is an attractive kind of home loan, even though it can be hard to plan for your future payments. As the name suggests, your mortgage rates with an ARM will adjust regularly according to where current rates are.  

The reason these mortgages are attractive is due to their initial period with a low interest introduction period. These periods can last for five, seven or 10 years and will have slightly lower fixed rate to get borrowers used to their monthly payments. 

After this first period, your rates will vary based on current interest rates as well as other factors like the current ARM index, ARM Margin and ARM cap structure. This will make your future payments a little more unpredictable as your rates will change annually or every six months.  

There are several government-backed mortgage options that typically come with more flexible qualifications than conventional loans because they are insured by certain government agencies. These loans are USDA, VA and FHA loans. 

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 zero-down payment options in approved areas. 

Another loan that offers a zero-down payment option is the VA loan, insured by the U.S. Department of Veteran Affairs. To be eligible for this loan, you will have to meet the VA’s requirements for active or former military service members. 

FHA loans are designed to help homebuyers, especially low- to moderate-income first-time buyers who may not meet the qualifications of other loans, purchase a home. These loans have loan amount limits based on area and neighborhood. 

Each of these government-backed loans come with their own requirements and benefits. Talk to a professional Loan Officer to see which loan option fits you and your needs best. 

Those looking to get a loan above certain national or county loan limits could consider a jumbo loan. These baseline amounts, called conforming limits, are national limits and will vary based on a specific area’s median home prices and income. Conforming loan limits change every year based on those factors in that area. 

Because these mortgages come with a larger loan amount, the qualifications you need to meet tend to be higher. Those looking to get a jumbo loan should expect to have a credit score of at least 700, a DTI ratio of no more than 43% and meet the minimum down payment option of 10%. 

Construction loans are typically short-term loans that are used to build a home. Unlike other loans that last for years, construction loans usually last for the length of time it takes to build your house. After that, you will have to pay off or refinance your home. There are some construction loans that will convert to a permanent mortgage after construction is completed. 

With different types of construction loan talk to a Loan Officer and find out which option is best for your situation and the needs of your planned construction. 

Whatever mortgage option is right for you, you can start applying through an online mortgage application.  

For anyone looking to talk with a professional to learn more about the loan options that could be right for you, your loan application will connect you with a Loan Officer.  

Loan Officers are available to answer any questions you may have about loans or the application process. 

Begin your application with a trusted lender today! 

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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