Choosing a mortgage is a big decision. To help you decide which mortgage is best for you, we’ve rounded up everything you need to know about the different types of mortgages. From a conventional mortgage to construction, and VA loans, think of this as your guide to mortgages explained.
- VA Loan
A VA loan is backed by the government’s Department of Veteran Affairs. These loans are typically lower interest and have flexible loan terms for U.S. military members. You can qualify as an active duty or veteran military member.
With a VA loan you may be able to qualify with a lower down payment and without the private mortgage insurance requirement. A VA loan offers more flexible loan terms to U.S. veterans and active military members making it a better choice over a conventional loan.
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- Conventional Mortgage
A conventional mortgage isn’t insured by the federal government. Conventional loans come in conforming and non-conforming mortgages. A conforming loan means it conforms to the Federal Housing Finance Agency limits. Loans that don’t conform are over these limits.
If you put less than 20% down on a conventional loan, you’ll need to pay private mortgage insurance also known as PMI. You can use a conventional loan for your primary home, vacation property, second home, or investment property.
- Jumbo Mortgage
A jumbo loan is a conventional mortgage that exceeds the federal loan limits. In 2021, for example, if you get a mortgage over $548,250 your loan is considered a jumbo loan. These loans are common in an expensive housing market or on a higher-priced home.
To qualify for a jumbo mortgage, you’ll typically need more documentation. In an expensive area, jumbo loans can help you buy a higher-priced home.
- FHA Loan
An FHA loan is backed by the Federal Housing Association. These loans help buyers with less than perfect credit achieve their dream of homeownership. You may also qualify for an FHA loan if you’re unable to put a large down payment down.
- USDA Loan
A USDA loan is backed by the federal United States Department of Agriculture designed to help farmers and people in rural areas buy a home. These can be helpful if you don’t qualify for a conventional mortgage.
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- Construction Loan
A construction loan will help you renovate or build a home. The loan you take to pay for the renovations can either be taken out separately or rolled into your mortgage. These tend to need more documentation to qualify for than an FHA or conventional loan.
With so many mortgage options out there, it can be hard to know which is right for you. From VA loans to jumbo loans, this guide has a few of the most common mortgages explained.
Whether you have less than perfect credit or a small down payment, it’s helpful to know there are mortgage options out there for everyone. For more mortgage and money resources, check out the finance section.