Choosing a Mortgage That's Right for You

Buying a home is a huge undertaking. There are so many things to consider, from budget to square footage, school district to number of bedrooms. But there’s one thing that stands above the rest and is crucial to making the actual purchase: the mortgage. There are several types of mortgage loans, and we’ve broken each one down to help you make an informed decision.

Fixed-rate loans

Fixed-rate home loans are the most common types of mortgages. Your interest rate stays the same, whether you pay off your home in 15 years or 30. Even if the market rates change, you’re all set—you’ve locked in a rate. However, your overall monthly payment may fluctuate depending on changes to property taxes and home insurance premiums.

If your down payment is less than 20%, many lenders require home buyers to purchase private mortgage insurance (PMI). PMI protects lenders in the event that homeowners are unable to make their monthly payments. It does NOT protect the buyer. However, most buyers are permitted to cancel their PMI once they’ve reached 20% equity in their home.

Adjustable-rate loans

Contrary to fixed-rate mortgages, adjustable-rate mortgages have interest rates that change over time. They start with an introductory period – the length varies by lender. Buyers can count on fixed interest rates that are generally lower than the current market rates.

Then comes the adjustment period, during which interest rates vary over time. Many lenders put caps on how much rates can rise and fall over time.

Conventional loans

Conventional loans are mortgages offered by private lenders. Though it’s possible to get a conventional loan with just a 3% down payment, they lack government backing and usually come with stricter requirements for borrowers, like minimum credit scores of 620 and a debt-to-income ratio of less than or equal to 50%.

FHA loans

Federal Housing Administration (FHA) loans are government-backed loans that are offered through private lenders. These types of mortgages help buyers with lower credit scores purchase homes. However, it’s important to note that people who opt for an FHA loan need to pay mortgage insurance premiums up front, as well as a monthly mortgage insurance premium. Unlike PMI, you can’t cancel these over time; you must continue to pay them until your home is paid in full.

VA loan

VA loans come straight from the Department of Veterans Affairs and are offered exclusively to U.S. veterans, active-duty military and, in some cases, surviving spouses. Borrowers must provide a certificate of eligibility and meet other qualifications.

USDA loan

U.S. Department of Agriculture (USDA) loans are great options for people who plan to buy homes in rural areas. Properties must meet USDA requirements and borrowers must meet USDA income limits.

Nonconforming loans

Most mortgages are conforming loans, which are almost immediately purchased by Fannie Mae or Freddie Mac. Nonconforming loans, like jumbo loans, are high-value loans that exceed the Federal Housing Finance Agency’s loan limits. They’re more common in expensive metropolitan areas and have stricter requirements for borrowers.

Which loan is best for you?

The type of loan that is best for you depends on your financial situation, like how much money you can put down on your house, what amount you prequalify for, your credit score and much more. Meet with our Residential Mortgage Loan Officer, Peter Salamone, to learn more about the right option for you. Give him a call at 414-459-4579 or email him at petersalamone@wsbonline.com.