Mortgages Simplified - Different Types of Mortgages

Mortgages Simplified - Different Types of Mortgages

1. Conventional mortgage

• How It Works: Requires a small down payment (as low as 3% less than 20% requires private mortgage insurance (PMI)).

• A good credit score (usually 620+)
• Stable income & debt-to-income ratio (usually below 43%)

2. FHA Loan (Federal Housing Administration)

• How It Works: Requires a small down payment (as low as 3.5%)
• A credit score (usually 500+)
• Requires mortgage insurance, adding to costs.

4. VA Loan (Department of Veterans Affairs)

• How It Works: No down payment or closing costs.
• No PMI.
• Offers lower interest rates and easier qualifications.
• Best For: Veterans, active-duty military and eligible spouses.

5. USDA Loan (U.S. Department of Agriculture)

• How It Works: No down payment required, but income limits apply.
• Requires a small mortgage insurance fee.
• For rural and suburban homebuyers (must meet location requirements).

6. Jumbo Loan

• How It Works: For expensive homes that exceed conventional loan limits  ($766,550+ in most areas for 2024).
• Requires a higher credit score (typically 700+).
• Larger down payments (10–20% or more) are required.
• Best for buyers purchasing high-value homes.

1. Fixed-Rate Mortgage

• How It Works: The interest rate stays the same for the entire loan (usually 15, 20, or 30 years).
• Predictable monthly payments (good for budgeting).

• Best For: Buyers who want stability and plan to stay long-term.

2. Adjustable-Rate Mortgage (ARM)

• How It Works: Starts with a lower interest rate (for 3, 5, 7, or 10 years), then adjusts periodically.
• The rate can increase or decrease based on market conditions.
• Best for short-term homeowners or those expecting income growth.

Which Mortgage is Right for You?