There are a lot of different types of home mortgages. Choosing the right one can help you get a better deal on your loan and save money over time.
The type of mortgage you choose will depend on several factors, including your credit history and income. You also need to consider your goals for the property.
Conventional
There are a number of different types of home mortgages available to home buyers. Each type offers a unique set of benefits and disadvantages. It’s important to know your options and find the right one for you.
The most common type of loan is a conventional mortgage, which is backed by private lenders rather than the government. Typically, they have lower interest rates and offer more flexible terms than government-insured mortgages.
Conventional loans are also a good choice for people who want the security of knowing their loan will stay fixed for the life of the mortgage. They often have interest rate caps, which prevent the interest rate from fluctuating above a certain level.
These types of home mortgages are available through both banks and non-bank lenders, as well as through online mortgage brokers. If you’re looking for a mortgage, it’s important to shop around with several lenders to get the best rates and terms.
A conventional mortgage can be used to purchase a single-family home, condo, townhome, or multi-unit property. It must conform to Fannie Mae or Freddie Mac loan limits, which are reevaluated by the Federal Housing Finance Agency every year based on national home prices. In 2021, the maximum conforming loan limit for a one-unit property is $548,250 in most areas and $822,375 in high-cost areas.
You can qualify for a conventional loan with a credit score of about 620, but most lenders require at least 660. Those with lower credit scores or higher debt-to-income ratios may need to make larger down payments or apply for a special program.
Another benefit of a conventional mortgage is that you can usually qualify for a loan with a down payment of as little as 3% on a 30-year fixed-rate mortgage. This can be a big help for people who don’t have a lot of money saved up.
In addition, many borrowers choose to put a portion of their monthly mortgage payment into an escrow account, which pays for homeowners insurance and property taxes. This saves borrowers money in the long run, and it’s a great way to reduce the lender’s risk, too.
Jumbo
A jumbo home mortgage is a type of loan that exceeds the limits set by Fannie Mae and Freddie Mac. In 2022, the maximum loan amount allowed by these government-sponsored enterprises (GSEs) is $647,200 for a single-family home in most areas. In some high-cost areas, the limit is even higher.
The primary reason borrowers seek out jumbo mortgages is that they want to purchase or refinance a property in areas where prices are high. This is because a traditional conforming loan, which Fannie Mae and Freddie Mac buy from lenders and then sell to investors on the secondary mortgage market, isn’t always possible.
In addition, a conventional mortgage lender typically requires tax returns, W-2s, and paycheck stubs to verify monthly income for most borrowers. By comparison, a jumbo lender is more likely to use an applicant’s gross income for qualifying purposes.
Lenders also take a close look at your credit score and debt-to-income ratio when considering whether or not you’re eligible for a jumbo loan. You should have a FICO credit score of at least 720 to qualify for this kind of loan, though some lenders are willing to go lower.
You should also have a substantial down payment, usually around 20% of the purchase price. This is especially important if you’re buying an investment property or a second home.
Depending on the property, you may also need to prove that you have enough money in reserve for six to 12 months’ worth of mortgage payments. Some lenders require this to be in liquid forms, such as checking accounts or savings, while others prefer to see it coming from a non-liquid source, such as a retirement account.
If you’re looking to secure a jumbo mortgage, it’s wise to shop around and compare rates. You can do this by requesting quotes from several lenders and then comparing them using online tools like those at Bankrate.
If you’re considering a jumbo mortgage, it’s essential to work with a reputable lender who can help you navigate the process. You should never pay more for a jumbo loan than you need to, and it’s critical to choose a lender who has your best interests in mind.
Government-Insured
If you’re in the market for a home loan, there are a lot of options out there. You’ve probably heard of terms like “conventional,” “jumbo,” and “government-insured.” These words can be confusing and daunting, but knowing the differences between them can help you make the right decision for your situation.
Government-insured loans are backed by the federal government, which helps alleviate some of the risks for lenders. This enables them to offer a variety of mortgages that can be easier to qualify for and with lower down payment requirements.
The most popular types of government-insured mortgages are FHA and VA loans. Both require lower minimum credit scores and down payments than conventional loans, which makes them an attractive choice for first-time homeowners and those who may not have the financial resources to make a large down payment on their own.
Another government-insured mortgage program is the USDA loan. It is designed for homebuyers in rural or low-population areas. These loans often require a down payment of just 3.5%.
However, like the other two programs, borrowers who use the USDA loan program must pay an upfront mortgage insurance fee that typically amounts to 1% of the loan amount. This can be paid upfront or financed into a loan.
Depending on the mortgage program, borrowers may also need to purchase additional insurance coverage. These insurance premiums are sometimes called the “guarantee fee” or “VA funding fee.”
In addition, many government-insured loans have a limit on the amount that you can borrow. This is especially true with FHA and VA loans, which both have loan limits.
A common disadvantage of government-insured loans is that they can be difficult to qualify for if you have a bad credit score or a low down payment. These programs are ideal for those who can’t qualify for conventional mortgages because of their credit, debt, or income.
Buying a home can be an important step in establishing your financial foundation and boosting your credit score. But it’s also a big decision and one that you need to make carefully. Before you jump in, it’s important to consider your situation and ask for help if needed.
