Buying a home is an exciting milestone in life. But navigating the various mortgage options can feel overwhelming for first-time homebuyers. This guide will explain the 4 primary types of residential mortgage loans to consider.
Conventional Loans
Conventional loans are the most common loans backed by private lenders like banks, credit unions, or mortgage companies. They conform to standards set by Fannie Mae and Freddie Mac.
You typically need a good credit score, stable income, and a down payment of at least 3-20% to qualify. Conventional loans often have lower interest rates than government-backed loans.
FHA Loans
FHA loans are insured by the Federal Housing Administration. The FHA sets guidelines for these loans, including allowing down payments as low as 3.5%.
FHA loans are a good option for borrowers with lower credit scores or less cash for a down payment. But they typically require higher mortgage insurance premiums.
VA Loans
VA loans are guaranteed by the U.S. Department of Veterans Affairs. They are for eligible veterans, active-duty service members, and surviving spouses.
VA loans offer zero down payment options and limited closing costs. However, borrowers must pay a VA funding fee. VA loans have competitive interest rates.
USDA Loans
USDA loans help low-to-moderate income borrowers in rural and suburban areas buy homes with no down payment. Applicants must meet income eligibility requirements.
USDA loans are a great home financing option for qualifying borrowers looking to purchase in less populated locations. Interest rates are typically consistent with conventional loans.
Looking into mortgage rates and costs for each type of loan is essential. Be sure to compare options from multiple lenders as you search for the best loan for your situation.
