The Different Types of Home Loans: A Simple Guide

The average American has a balance of $41,600 in their bank accounts. If this sounds about right for you, then you’re in a pretty comfortable financial spot. You might even be thinking of buying a house!

However, you won’t be able to afford one outright. You’ll need a hefty loan, which is what mortgages are for!

But did you know there are different types of home loans? Read on to find out more about the types of mortgages you can choose.

Conventional Loans

Conventional loans are provided by private lenders and aren’t backed by the federal government. There are 2 types available: conforming and non-conforming.

Conforming conventional loans adhere to Federal Housing Finance Agency (FHFA) standards. This means there are limits put on credit, debt, and loans sizes.

Non-conforming conventional loans don’t adhere to FHFA standards and can be good for purchases on larger properties. They’re also ideal for people who have faced bankruptcy before.

Whichever one you choose, you need to have a minimum credit score of 620 and a debt-to-income (DTI) ratio lower than 43%. The down payment amount will also be higher.

Jumbo Loans

Jumbo loans allow homeowners to borrow outside the limit set by the FHFA. Typically, they’re used by residents in higher-cost cities, such as Los Angeles and New York City.

Because you can borrow a higher amount, you must have a higher credit score (upward of 700). You also need to have a DTI ratio below 45% and prove you have significant assets.

Government-Insured Loan

The US government will back some mortgages, through FHA, USDA, and VA loans. What’s great about these is you won’t need a fantastic credit score to qualify, nor will you have to put down a big down payment.

Do note that you might have higher overall borrowing costs and there will be mandatory mortgage insurance premiums (for FHA loans).

Fixed-Rate vs Adjustable-Rate Mortgages

With most home loans, you’ll be signing for a fixed-rate mortgage. This means that throughout the life of your loan, the interest rate will remain the same, so your mortgage payments won’t change. You can usually choose between terms of 15 or 30 years.

On the other hand, you might be able to choose an adjustable-rate mortgage (ARM). The interest rate can go up and down during the life of your loan, which can work out in your favor. This is a good type of mortgage for people who don’t plan on staying in their homes for very long.

Some lenders may use websites like srv1st.com to help you close loans you’d otherwise be refused for. So even if you don’t feel like you’d qualify for a mortgage, it’s worth a try!

Look Into the Types of Home Loans Available

Now that you know about the different types of home loans, you can determine what the best option is for you.

But before you sign for a mortgage, make sure you speak to a mortgage advisor first. They can assess your situation and determine if you’re making the best choice possible.

If you’d like to learn more about buying a house, then keep browsing our blog page!