By Jeff Wellman 

As a prospective homebuyer, researching mortgage types is just as important as researching the types of homes and neighborhoods where you want to live. Many types of mortgages exist, and there are different types to appeal to the different types of buyers. Deciding what type of mortgage is right for you will help direct you to a home that fits within your budget.

Before you get started searching for a mortgage, there are a few things you’ll need: Your estimated down payment, what you can afford for a monthly payment, and a credit score. There are several home loans available; here are some of the main types explained. 

Conventional Mortgages

This is the most common type of home mortgage. Despite their popularity, there are often stricter regulations surrounding your credit score and the amount of debt you have. You’ll need a credit score of at least 620, and a minimum of 3% down to qualify for a conventional loan. Having a lower debt-to-income ratio can also help you qualify, with a ratio of 43% being the standard cutoff. When you put less than 20% down on a home, you’ll be required to pay mortgage insurance. In a nutshell, if you have strong credit, limited debt, and can afford a good down payment, a conventional mortgage can be a good fit. 

Fixed-Rate Mortgages

These mortgages maintain a steady interest rate over the life of the mortgage, which means your payment will always stay the same. Fixed loans are typically 15- or 30-years terms. With your payment remaining the same, it can make it easier to budget other expenses month to month. One thing to keep in mind with a fixed-rate mortgage is that interest rates can be higher, and you may pay more interest with a longer-term loan. 

Adjustable-Rate Mortgages

Unlike the unchanging nature of a fixed-rate loan, adjustable-rate mortgages (ARMs) have interest rates that fluctuate based on market conditions. Many ARMs have a fixed rate for the first few years, and then the interest rate changes to variable for the remainder of the loan. When considering an ARM, it’s imperative that you understand the “fine print” of the loan, and know how much interest you could end up paying after the introductory timeframe. 

Government-Insured Loans

Our country’s government is not a lender, but it does help people become homeowners. There are 3 types of government loans, and certain people qualify for them. They are Federal Housing Commission Loans (FHA), the US Department of Agriculture Loans (USDA), and the Department of Veteran Affairs (VA loans).

FHA loans are helpful for people with not-so-great credit scores, or who don’t have a sizeable down payment. The required credit score goes down if you have a larger down payment. Sellers are also permitted to contribute to the closing costs in these types of loans. 

USDA loans help low-income borrowers buy in less-populated areas. The area in which you are buying must be eligible, and you must meet income limits to qualify. Some USDA loans do not require a down payment. These loans often have several extra fees, including annual fees. 

VA loans are low- interest loans for members of the military, both active duty and veterans. These loans do not require a down payment or mortgage insurance, and help with closing costs. There is a funding fee that helps to offset the programs cost to taxpayers. Many lenders offer the lowest rate possible on these loans, and some are willing to accept lower credit scores. 

North Harbor Real has partnered with community organizations that share our corporate values and resonate with our real estate associates. Most importantly, we partner with companies who are dedicated to their vision and objectives. Helmsman Home Mortgage Inc. is our trusted partner for all things home loans.