When you're buying a house, it can be difficult to understand the different loan types and rates. The jargon can make it confusing to figure out how mortgages work and pick the one that's right for you.

At Freedom Mortgage, we can help you buy a home with a conventional, FHA, VA, and USDA loans. Read on to learn about how to compare loan options so you can make the best and most affordable choice.

Comparing Mortgages At a Glance

The table below shows some of the key factors to consider when comparing different mortgage loans.

Steps for Comparing Mortgage Loans

You should compare home loans from several lenders when deciding which mortgage loan is right for you. You may also want to compare different loan types. Here's how you go through the process.

1. Get Prepared

You should get multiple quotes to compare mortgage options and rates (as well as closing costs). It's easier to do that if you prepare in advance. Steps to take to prepare for a mortgage application include gathering documents required for a mortgage, like tax returns and pay stubs. You should also check your credit history and score and make a budget to determine how much you can afford to pay each month on your mortgage.

2. Explore Loan Types

There are different types of mortgages to consider, and not all lenders offer all types of loans. It's helpful to know what kind of loan you want so you can find trustworthy and experienced mortgage lenders offering it.

If you have a low credit score, a limited down payment, or are a veteran, you might save money with loans backed (guaranteed) by the government, including FHA, VA, and USDA loans. These loans often have more relaxed qualifying requirements, and in some cases, no down payment is required. You may have to pay more upfront fees than with a conventional loan, though.

You'll also need to decide whether you want a fixed-rate loan with payments that won't change or an adjustable-rate loan that may start out less expensive than a fixed-rate loan, but that may put you at risk of rising payments over time. Once you decide which loan is best, look for a trusted lender that can provide it.

3. Shop for a Lender

Compare trusted and experienced lender offers so you can find the best and most affordable loan with terms that are best for you. You can get a loan estimate in order to understand costs so you can make a fair comparison.

Freedom Mortgage is a top VA and FHA lender, and we're ready to help you qualify for the best mortgage to meet your financial goals. To find out how much money you can save with your mortgage today, get prequalified now with Freedom Mortgage.

4. Determine Mortgage Eligibility

Lenders follow qualifying criteria for mortgage eligibility set by the mortgage loan type you choose (such as conventional loan, VA loan, FHA loan, etc.). To avoid applying for a loan you aren't eligible for, it's recommended to research each lender's requirements for approval.

Some of the key factors that lenders usually consider include:

• Credit score: A higher credit score improves your chances of approval and of qualifying for more favorable interest rates.
• Debt-to-income ratio: Many mortgage types require total debt payments, including your new mortgage, to be below a certain percentage of your income. A 43% DTI limit is common, but many loans make exceptions for higher DTIs.
• Down payment: Many loans have a minimum down payment requirement of 3.5%, 5%, 10%, or 20%. While there are options (VA loans and USDA loans) that don't require down payments, especially for veterans, you can usually qualify for the best rates and terms if you can put 20% down when you buy your home.

Most homebuyers can apply for conventional and FHA loans if they meet financial requirements. VA and USDA loans are different.

Only veterans, active-duty military personnel, and surviving spouses are eligible to apply for VA loans. With USDA loans, the location of the house determines whether or not you are eligible to apply. The home must be in an approved rural or suburban area to buy it with a USDA loan.

You can find out if you are eligible to borrow from a specific lender by going through their prequalification process. Prequalification involves providing some basic financial details to find out if you're likely to be approved during the formal application process.

5. Consider Property Types

The next thing to understand is what kind of house you can buy with the loan.

You can buy a primary home—that is, the house where you live most of the time—with conventional, FHA, VA, and USDA loans. The rules are different when you want to buy a vacation home or investment property. You can only buy these types of houses with a conventional loan.

6. Compare Minimum Down Payments

Conventional and FHA loans require a minimum down payment. You may be able to get a conventional loan with a down payment as low as 3% of the purchase price (for many customers the minimum is 5%), while it's possible to get an FHA loan with a down payment as low as 3.5%.

VA and USDA loans often do not have a minimum down payment requirement, so if you're approved for a VA or USDA loan, you may be able to buy a house without putting money down.

7. Compare Mortgage Insurance Costs

Mortgage insurance protects lenders when you make a small down payment by ensuring lenders don't lose money if they must foreclose. You must pay for mortgage insurance, but when and how much you pay depends on the loan type.

• Conventional loans typically require private mortgage insurance (PMI) if your down payment is below 20%. Once your home's equity reaches 20%, you can request that your lender cancel your mortgage insurance payments if certain conditions are met. Private mortgage insurance (PMI) is canceled automatically once you've reached 22% equity (if your mortgage payments are current).
• FHA loans require a one-time, upfront mortgage insurance premium that conventional loans don't charge. You'll also pay monthly mortgage insurance premiums for a set minimum time period, depending on your loan amount and Loan-to-Value (LTV) ratio.
• USDA loans have mortgage insurance costs. There is both an upfront cost and a monthly payment. Note that these are called "guarantee fees" rather than "mortgage insurance."
• VA loans have an upfront fee called a "funding fee." When you buy a home with a VA loan, you'll have to pay this fee unless you're eligible for a VA loan funding fee waiver. There are no monthly funding fee payments with VA loans, which helps make these mortgages more affordable.

While conventional and FHA mortgage insurance work differently, you should understand the cost of both before you move forward with buying.

There are no monthly funding fee payments with VA loans, which helps make these mortgages more affordable.

8. Compare Mortgage Interest Rates

Interest rate is the biggest deciding factor for many homebuyers when comparing mortgage loans. The higher the interest rate, the more money you'll pay in interest over the life of the loan.

The best way to compare rates is to look at the annual percentage rate (APR) and not just the interest rate. APR provides a more accurate estimate of total costs than interest rates, because APR includes fees.

You should also know that you won't always qualify for the mortgage rates you see advertised. Once you apply, lenders determine your rate based on your own financial credentials, including credit, income, finances, and loan amount. If you reach out to Freedom Mortgage, you can get prequalified for free and find your low personalized rate.

9. Compare Mortgage Refinancing Options

One good thing about getting a mortgage is that you don't have to commit to it forever. If mortgage rates drop, you can refinance your home loan. In fact, you should consider your future refinancing options when you compare mortgage loans.

If you get a conventional loan and want to refinance, you'd typically need a "full-document" review. Essentially, you'd go through the entire mortgage application process again, including providing all of your financial documents.

FHA, VA, and USDA loans, on the other hand, offer streamline refinance options. These make lowering your rate much easier because you can refinance with a lot less paperwork. You can't change loan types, though. For example, you can only streamline refinance an FHA loan into another FHA loan.

It's worth considering what refinance options you can easily access later, especially if you believe interest rates will decline in the future.

Final Thoughts: Comparing Your Home Loan Options

Selecting the right mortgage is a major financial decision. By taking the above steps to compare mortgage options, you can find a home loan that fits your financial goals and makes sense for you.

Freedom Mortgage can help with the process, so reach out today to talk with a mortgage professional to discuss what loan saves you the most money and to get started with the prequalification process.