When you want to buy or refinance a home, there can be many types of mortgages for you to choose. Read on to learn more about the kinds of mortgages that may be available to you!
One type of mortgage are loans guaranteed by the federal government and offered by private lenders. There are loans backed by the Department of Veterans Affairs (VA loans). Loans backed by the Federal Housing Administration (FHA loans) which is part of the Department of Housing and Urban Development. And loans backed by the United States Department of Agriculture (USDA loans).
These government-backed loans are designed to make buying or refinancing a home more affordable. There are requirements you’ll want to understand about these loans. One requirement is that you are generally restricted to buying a primary home – which is a house where you plan to live most of the time – with government-backed loans.
Another requirement is that some government-backed loans have restrictions on who is eligible to apply for them. Only veterans, active-duty military personnel, and surviving spouses are eligible for VA loans. Anyone can be eligible for a USDA loan, but you can only finance houses in rural and certain suburban communities with them. Anyone can be eligible to apply for an FHA loan and you can use them to finance houses anywhere in the United States.
You will need to complete an application and meet your lender’s credit, income, and financial standards to get your mortgage approved. You generally need to pay closing costs which often include mortgage insurance premiums or loan guarantee fees.
Conventional loans are a type of mortgage offered by private lenders without a government guarantee. These loans are also called "conforming mortgages" because they meet standards which make them eligible for purchase by Fannie Mae and Freddie Mac. These standards include a limit on the mortgage amount, which is $726,200 in 2023.
Conventional mortgages often have higher credit and financial requirements compared to government-backed mortgages, but they have advantages too. One advantage is you can use conventional mortgages to buy or refinance primary homes, vacation homes, rental properties, and investment properties.
Anyone can be eligible to apply for a conventional mortgage and you can use them to finance properties anywhere in the United States. You can get competitive interest rates and terms with conventional mortgages when you have good credit and finances too.
Finally, you can avoid paying for mortgage insurance with conventional mortgages when your home equity is 20% or more. When you are buying a home, this generally means you have made a down payment of at least 20%. Learn more about mortgage insurance.
When you are refinancing, estimating the value of your home’s equity can be a good idea (see our article on home equity for more information on how to do this.) This is especially true when you have an FHA mortgage and you qualify for refinancing with a conventional mortgage. In this case, you may be able to stop paying mortgage insurance premiums by refinancing from an FHA to a conventional mortgage.
Jumbo mortgages are a type of conventional mortgage which are not eligible for purchase by Fannie Mae or Freddie Mac because the loan amount is greater than $726,200. This means lenders may keep jumbo mortgages on their books rather than selling them to other lenders or investors. As a result, lenders often have higher credit, income, and financial requirements to approve jumbo mortgages. They may charge higher interest rates too. Learn more about jumbo mortgages.
When you get a fixed-rate mortgage, your interest rate does not change over the life of the loan which can help make your interest payments more predictable. Lenders often offer a fixed-rate for many types of mortgages. For example, you can often get a fixed rate on a conventional, VA, FHA, or USDA loan. Learn more about fixed-rate mortgages.
When you get an adjustable-rate mortgage, your interest rate can change over the life of the loan which can make your interest payments less predictable. Lenders may offer an adjustable-rate for many types of mortgages. Learn more about adjustable-rate mortgages and how they compare to fixed-rate loans.
This type of mortgage can have a low monthly payment in the beginning of the loan term but require a large lump-sum payment (a "balloon payment") at the end of the loan term. Financial professionals often consider these mortgages risky for the average homebuyer because you can risk defaulting on your mortgage if you cannot afford the large payment the mortgage requires. Many lenders do not offer balloon mortgages to their customers as a result.
Ask about the types of mortgages you can get from us!
Freedom Mortgage can help you buy and refinance a home with a conventional, VA, FHA, or USDA loan. Would you like to learn more about your mortgage options? Speak to an experienced Loan Advisor today by visiting our Get Started page or calling 877-220-5533.
Last reviewed and updated July 2022 by Freedom Mortgage Corporation.