Types of Home Mortgage Loans

So you've found the perfect home. Your family is excited, you can't stop daydreaming about that three car garage and your dog is already salivating over that gleaming red fire hydrant at the curb. Unfortunately, you haven't quite made it to the closing table because you still need...financing. Financing can seem quite complicated, but with a bit of research into the types of home mortgages available, you can quickly assess the best loan for you and get around to the fun stuff - packing.

Conventional vs. Non-Conventional

A conventional loan is not insured by the government and is provided by a private lender. A government backed loan, on the other hand, includes such options as FHA, VA and USDA loans.

FHA Loans: These popular mortgage loans are insured by the Federal Housing Administration, therefore, if a homeowner defaults, the lender can collect their repayment through the FHA. These loans are especially appealing to individuals with less than stellar credit because they often cannot qualify for a conventional mortgage. FHA Loans also require much smaller down payments than typical loans, sometimes as low as 3.5%. One disadvantage to the FHA loan is that a premium must be paid for government mortgage insurance, which helps the FHA recoup their losses if you default on the loan.

VA Loans: This type of loan is less popular because it is only available to military service members and their families. One great perk to the VA Loan is that it can be used to finance the total purchase price so a down payment is not necessary.

USDA Rural Development Loans: There are a couple of options for USDA loans, which include direct and guaranteed loans. Direct Rural Development Loans are generally intended to assist low income individuals in purchasing homes in rural areas. The house must be considered modest in size, design and cost. Rural Development Guaranteed Housing Loans allow the purchaser to have a higher income, but they must be in need of adequate housing and capable of paying the mortgage payments including taxes and insurance.

How to Choose the Right Home Mortgage Loan

1. Consider your credit score: To qualify for a conventional mortgage, you will generally need to have a FICO credit score of 640 and higher. If your score is significantly below this, a government loan may be the only option available.
2. What can you afford for a down payment? Conventional mortgages generally require anywhere from 5% to 10% for a down payment. Therefore, if you're looking at a $100,000 home, you need $5,000 to $10,000 down just to qualify.
3. ARM vs. Fixed-Rate Mortgage: An Adjustable Rate Mortgage has a mortgage rate that will change over time, which may increase or decrease your mortgage payment; however, this generally happens after a fixed rate period. These loans are ideal if you plan to pay off your mortgage in a short period of time, don't intend to stay in the house over the long term or feel confidant that you can afford the payment when the rate adjusts. Fixed Rate Mortgages keep the same interest rate for the life of the loan so you don't have to worry about a payment adjustment based on a changing mortgage rate.

As a realtor in East Lansing, I've worked with buyers who have used all of the above mortgages and more. Whether you're searching for a new home or would just like to find out more about mortgages that you qualify for, please get in touch with me at MyRealtorRob. You can also visit my website for other buyer resources including a mortgage calculator.