Find The Best Mortgage Type For You

Securing a mortgage for your home can be a bit confusing; there are quite a few different types of mortgages out there, and it’s imperative that you choose the one that's right for your unique financial situation - a mortgage is a huge financial decision, after all!

In this article, we’ll discuss the 6 different common types of mortgage loans and what they are so you can find the best mortgage type for you.

Jumbo Loan

Since 2018, the limits set forth for loans in most states are $453,100; when you need to exceed this dollar amount with your mortgage loan, it’s called a jumbo loan. The loan limits change in accordance with your area and average home pricing, so be sure to check into this when deciding which home loan is right for you.

VA Loan

Veterans should definitely take advantage of this loan type when seeking a mortgage for a home purchase. With a VA loan, you’ll get the lowest financing rate and only need a 620 or higher credit score to qualify; this loan can be easier to qualify for all-around than other mortgage types. You also will not have to worry about mortgage insurance with this loan, and a downpayment is not required - you can get 100% financing. Closing costs are also known to be exceptionally low for these mortgages.

203K Loan

Otherwise known as a fixer-upper loan, this is the loan type you’ll need if you are purchasing a home that will need upgrades and repairs. Essentially, your loan will be given in two parts: one portion of the loan for the purchase of the property, and one portion of the loan for any needed renovations and upgrades. A minimum of 620 credit score is required, but often a 640 or higher score is preferred for this mortgage type. Also, the loan portion for renovations is limited to $35,000.

Conventional Loan

If you have a decent amount to put down on your home purchase and a minimum credit score of 640, this could be the best loan for you. Typically, you’ll need to have 20% of the home purchase amount available to put down, but you do have the added bonus of being able to skip out on mortgage insurance with this loan - this will save you money on your mortgage each month. You also have more flexibility in choosing the loan rate and repayment that works best for you with this type of loan.

FHA Loan

This loan type is great for first-time homebuyers and those with more limited financial resources and incomes. Those with credit scores below 620 can often get approval, and only a 3-5% down payment will be requested. Also, you’ll be guaranteed to get the lowest of available mortgage rates with this type of loan. This is a government loan.

USDA Loan

If you have a credit score of 640 or higher and are looking to purchase in a more rural location, this may be the right loan for you. You won’t need a down payment with this mortgage type, however, you will be limited to purchasing a home within the areas set forth by the USDA.

Loan Length

When you’ve chosen the mortgage type that is best for you, you’ll need to consider how long you need to finance your mortgage. The most popular terms are 15 year fixed mortgages or 30 year fixed mortgages. There is also a 5-1 adjustable rate mortgage available for those who plan to pay off the loan within 5 years and want to save money by doing so. A 15 year loan time is probably your best choice if you have a high income and a lot in savings, while a 30 year (and most popular) loan term is great for people needing longer to pay off the loan, who have less in savings, and who desire a lower mortgage payment.