Buying a house is both exciting and complicated, and so is finding a mortgage. There are different types of mortgages, for different types of buyers, and the loans available to you will depend on factors like the size of your down payment, how much you’ll be able to afford monthly, and your credit score. Knowing the type of loan for which you qualify will help you determine which type you want. Let’s look at some different kinds of mortgages.
- The most common type of mortgage is the conventional mortgage. Funded by private financial lenders and not insured by the federal government, conventional loans can be conforming or non-conforming. Conforming loans fall within the maximum limits set by the Federal Housing Finance Agency, while non-conforming loans don’t meet these guidelines. Even though conventional mortgages don’t have strict regulations on income, home type, or home location, they do have strict guidelines when it comes to credit score and debt-to-income (DTI) ratio. You’ll need a minimum credit score of at least 620 to qualify, but you can buy a home with as little as 3 percent down. However, a 20 percent down payment means you won’t have to pay private mortgage insurance (PMI). Conventional mortgages typically have a lower borrowing cost after fees and interest than unconventional mortgages, and they’re good for buyers who have a stable income and strong credit.
- Other types of conforming loans are fixed-rate mortgages and adjustable-rate mortgages (ARM). Fixed-rate mortgages have the same interest rate throughout the life of the loan, while ARMs start with a low fixed rate and then fluctuate with the market. If you’re planning on staying in your home forever, a fixed-rate mortgage is a good option. However, if you intend to move after a few years, you can save money with an ARM.
- If you can’t get a conventional loan because of the strict qualifications, you might qualify for a government-backed loan. An FHA mortgage is backed by the Federal Housing Administration and can allow you to buy a home with a 580 credit score and 3.5 percent down, or 500 with 10 percent down. A USDA mortgage is insured by the United States Department of Agriculture and can allow you to buy a home with no money down, as long as the home is in a suburban or rural area and you meet certain income requirements. A VA mortgage is backed by the Department of Veterans Affair and allows veterans to buy a home with no money down and a low interest rate.
- Balloon mortgages aren’t very common, nor is an interest-only mortgage. With a balloon mortgage, the buyer pays interest for a set time period and then a lump sum. Interest-only mortgages are a type of balloon loan, in which you pay interest each month and make payments on the principal periodically. These are a good option if you have a variable income and high cash flow, or if you live in an area where home values are rising and plan to move before your balloon payment is due.
When it’s time to purchase a new home, Vutech & Ruff can help you find the right one for you. We provide outstanding service to both buyers and sellers, assisting with just about every aspect of real estate while maintaining the highest level of professionalism. Our award-winning agents have years of experience, and our featured properties are located in some of the best neighborhoods in the Columbus, Ohio area. Call 614-706-0122 or contact us through our website so we can get to work for you!