Rhonda L. Jensen

NMLS # 261050

801-272-0600

rhonda@advancedfunding.com

Rhonda L. Jensen Mortgage Loan Advisor

MORTGAGE LOAN OPTIONS

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EXPLORE THE BEST

MORTGAGE OPTIONS

FOR YOUR SITUATION




Types of Mortgage Home Loans

As a prospective home buyer, it’s just as important to research types of mortgages as the neighborhoods you want to live in. Applying for a home loan can be complicated, and deciding which type of mortgage best suits your needs early on will help direct you to the type of home you can afford.

There are a number of home loans to choose from when you buy or refinance a home, so it's important to fully understand the advantages and disadvantages of each type before you make a decision. Depending on the type of mortgage you choose, you’ll have different requirements that influence your rate and the length of the loan. Selecting the right mortgage for your situation can lower your down payment and decrease the overall interest rate over the life of your loan.

Types of Home Loans

Triangle IconConventional Mortgage Loans

Triangle IconFixed-Rate Mortgages

Triangle IconAdjustable-Rate Loans

Triangle IconFHA Loans

Triangle IconUSDA Loans

Triangle IconVA Mortgage Loans

Triangle IconJumbo Loans

 

Requirements to Get a Mortgage

To find the best mortgage for your prospective home, understand the types of loans you’re able to pursue. The factors below can influence the types of mortgages you’ll qualify for:

Types of Home Loans


Conforming Loans


  • Conventional Mortgages
  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages

Non-Conforming Loans


  • Jumbo Loans
  • Non-Qualified Loans (Non-QM)
  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages

Government Loans


  • FHA Mortgage Loans
  • USDA Mortgages
  • VA Loans


Mortgages are typically considered to be conforming conventional, nonconforming conventional, or a government loan. If your loan meets the guidelines set forth by either Fannie Mae or Freddie Mac, it is considered a conforming conventional loan. If your loan is insured in some way by a government agency it is considered a government loan. If it does not meet any of the previous loan guidelines it is then considered a nonconforming conventional loan.

Conforming Conventional Loans

A conforming loan refers to a conventional mortgage that meets guidelines set by Fannie Mae or Freddie Mac. These loan requirements include the following:

Conforming loans have well-defined guidelines and there’s less variation in who qualifies for a loan. Making conforming loans less risky. This means that you may be able to get a lower interest rate when you choose a conforming loan.

Non-Conforming Conventional Loans

If your loan doesn’t meet conforming or government loan standards, it’s considered a non-conforming loan. Nonconforming loans have less strict guidelines than conforming loans. These loans can allow you to borrow with a lower credit score, take out a larger loan or get a loan with no money down.

You may even be able to get a nonconforming loan if you have a negative item on your credit report, like a bankruptcy. Most nonconforming loans will be either jumbo loans or non-qualified mortgages (non-QM).

Government-Insured Loans

A government-insured mortgage is just what it sounds like: a mortgage loan that is insured by the government. Government-insured mortgages are sometimes referred to as government-backed mortgages, but the definition is the same. It means that the mortgage is backed by the government.

The government doesn’t issue the mortgage or lend the money directly to borrowers. The loan is originated (or funded) by a mortgage company. The loan is then insured (or guaranteed) by the government.

Understanding Different Types of Mortgages

Depending on the type of mortgage applicant you are, you’ll find various advantages and disadvantages of a home loan. Whether you’re a first-time buyer, or are downsizing or refinancing, consider the type of applicant you are before selecting a mortgage.

 

Conventional Mortgage Loans

Conventional mortgages are the most common type of mortgage. That said, conventional loans do have stricter regulations on your credit score and your debt-to-income (DTI) ratio.

You can buy a home with as little as 3% down with a conventional mortgage. You’ll also need a minimum credit score of at least 620 to qualify for a conventional loan. You can skip buying private mortgage insurance (PMI) if you have a down payment of at least 20%.

However, a down payment of less than 20% means you’ll need to pay for Private Mortgage Insurance (PMI). Mortgage insurance rates are usually lower for conventional loans than other types of loans (like FHA loans).

Conventional loans are a good choice for most borrowers who want to take advantage of lower interest rates, higher credit scores, and larger down payment.

Pros of a Conventional Mortgage

Cons of a Conventional Mortgage

Who Might Benefit

Fixed-Rate Mortgages

A fixed-rate mortgage has the same interest rate and principal/interest payment throughout the entire life of the loan. The amount of your monthly payment may fluctuate due to changes in property taxes and insurance premiums, but for the most part, fixed-rate mortgages offer you a very predictable monthly payment.

A fixed-rate mortgage might be a better choice for you if you’re currently living in your “forever home". A fixed interest rate gives you a better idea of how much you’ll pay each month for your mortgage payment, which can help you budget and plan for the long term.

You may want to avoid fixed-rate mortgages if interest rates are high. Once you lock in, you’re stuck with your interest rate for the duration of your mortgage unless you refinance. If rates are high and you lock in, you could overpay thousands of dollars in interest. Speak to a local mortgage broker to learn more about how market interest rates are trending.

Pros of a Fixed-Rate Mortgage

Cons of a Fixed-Rate Mortgage

Who Might Benefit

Adjustable-Rate Mortgages

The opposite of a fixed-rate mortgage is an adjustable-rate mortgage (ARM). ARMs are 30-year loans with interest rates that change depending on how market rates move.

You first agree to an introductory period of fixed interest when you sign onto an ARM. Your introductory period is typically 3, 5, 7, or 10 years. If you sign on for a 5/1 ARM loan, for example, you’ll have a fixed interest rate for the first 5 years. During this introductory period, you pay a fixed interest rate that’s usually lower than a 30-year fixed loan.

After your introductory period ends, your interest rate changes depending on market interest rates. Your lender will look at a predetermined index to calculate how rates are changing. Your rate will go up if the index's market rates go up. If they go down, your rate goes down.

ARM loans include rate caps that dictate how much your interest rate can change in a given period and over the lifetime of your loan. Rate caps protect you from rapidly rising interest rates. For example, interest rates might keep rising year after year, but when your loan hits its rate cap, your rate won’t continue to climb. These rate caps also go in the opposite direction and limit the amount that your interest rate can go down as well.

ARMs can be a good choice if you plan to buy a starter home before moving to your forever home or plan on moving within a few years of taking a new mortgage. You can easily take advantage and save money if you don't plan to live in your home throughout the loan’s full term.

These can also be especially beneficial if you plan on paying extra toward your loan early on. ARMs can give you some extra cash to put toward your principal. Paying extra on your loan early can save you thousands of dollars later on.

Pros of an Adjustable-Rate Mortgage

Cons of an Adjustable-Rate Mortgage

Who Might Benefit

Government-Backed Loans

Government-backed loans are insured by government agencies. When lender and brokers talk about government-backed loans, they’re referring to three types of loans: FHA, VA and USDA loans. These loans are less risky for lenders because the insuring body foots the bill if you default on your mortgage. You may qualify for a government-backed loan if you can’t get a conventional loan.

Each government-backed loan has specific criteria you need to meet in order to qualify along with unique benefits, but you may be able to save on interest or need a lower down payment if you qualify.

 

FHA Mortgage Loans

FHA loans are insured by the Federal Housing Administration. An FHA loan can allow you to buy a home with a credit score as low as 580 and a down payment of 3.5%. With an FHA loan you may be able to buy a home with a credit score as low as 500 if you pay at least 10% down.

 

USDA Mortgage Loans

USDA loans are insured by the United States Department of Agriculture. USDA loans have lower mortgage insurance requirements than FHA loans and can allow you to buy a home with no money down. You must meet income requirements and buy a home in a suburban or rural area in order to qualify for a USDA loan.

 

VA Mortgage Loans

VA loans are insured by the Department of Veterans Affairs. A VA loan can allow you to buy a home with zero down payment and lower interest rates than most other types of loans. You must meet service requirements in the Armed Forces or National Guard to qualify for a VA mortgage loan.

Pros of a Government Insured Loan
Cons of a Government Insured Loan
Who Might Benefit

Jumbo Loans

Jumbo loans are for those that desire to purchase or refinance a home with a loan amount that exceeds the limits of conforming conventional loans. You usually need a jumbo loan if you want to buy a high-value property. The conforming loan limit is set by the Federal Housing Finance Agency (FHFA) annually.

Jumbo loan interest rates are usually slightly higher than conforming interest rates, but they’re more difficult to qualify for than other types of loans. You’ll need to have a higher credit score, larger down payment, and a lower DTI to qualify for a jumbo loan.

Pros of a Jumbo Loan

Cons of a Jumbo Loan

Who Might Benefit

Bottom Line: Find the Best Mortgage for You

The best type of mortgage loan depends on your individual preferences and situation. Prior to choosing your home loan, it may help to speak to one of our mortgage loan brokers. We can reached at (801) 272.0600.

Prospective home buyers have a lot to consider when choosing from the different types of mortgage loans available. Your credit score, income, debt, and property location all influence the home buying process and type of mortgages you can get. Advanced Funding Home Mortgage Loans' home loan experts can assist with a personalized solution to determine the best fit for you.

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