When it comes to purchasing a home, there are several types of mortgages to choose from. Each type has its own set of requirements and benefits, so it’s important to understand the differences before making a decision. Here are seven common types of mortgages used to buy a home:
1. Conventional Mortgage:
Conventional mortgages are the most common type of home loan. These loans are not insured by any government agency and are funded by traditional banks, mortgage finance companies, and credit unions. While conventional mortgages may be more difficult to qualify for compared to government-backed loans like FHA loans, they typically come with lower costs.
2. Jumbo Mortgage:
A jumbo mortgage is a loan that exceeds the lending limits set by the Federal Housing Finance Agency (FHFA). These loans are used to purchase expensive properties and are typically reserved for borrowers with strong finances and high credit scores. Borrowers will often need to make a larger down payment when taking out a jumbo loan.
3. FHA Loan:
FHA loans are insured by the Federal Housing Administration and are issued by approved lenders. These loans are designed for homebuyers with low income or those who may not qualify for a conventional loan. One of the main benefits of FHA loans is that they have less stringent qualification requirements, allowing borrowers with lower credit scores to qualify with a lower down payment.
4. VA Loan:
VA loans are available to active-duty service members, veterans of the U.S. Armed Forces, and their spouses. These loans are backed by the Department of Veterans Affairs and do not have a VA home loan limit for those with full entitlement. VA loans do not require a down payment, but borrowers with remaining entitlement must adhere to VA home loan limits.
5. USDA Loan:
USDA loans are intended for low- to moderate-income buyers in rural areas designated as eligible by the USDA. These loans do not require a down payment or private mortgage insurance (PMI), but borrowers must pay an upfront guarantee fee and an annual fee to cover the cost of the loan.
6. 203(k) Loan:
A 203(k) loan is insured by the FHA and is designed for buyers purchasing a home in need of significant renovations and repairs. This type of loan covers both the purchase of the home and the cost of improvements, making it ideal for buyers looking to fix up a property.
7. Non-QM Loan:
Non-qualified mortgages, or non-QM loans, are intended for self-employed buyers or those with unique financial situations. These loans have more flexible credit and income requirements compared to qualified mortgages, making them a good option for borrowers who may not meet traditional lending criteria.
In conclusion, understanding the different types of mortgages available can help you make an informed decision when purchasing a home. Whether you opt for a conventional loan, jumbo mortgage, FHA loan, VA loan, USDA loan, 203(k) loan, or non-QM loan, it’s important to carefully consider your financial situation and goals before choosing a mortgage that best suits your needs.