Whether you’re a first time home buyer or are looking to upgrade to a larger home, you may be wondering which mortgage loan is best for you. The answer is not simple, because it depends on individual circumstances and goals. Choosing the best loan for you depends on several factors, such as your income, your credit history, and your financial goals. Let’s begin by discussing the different types of mortgage loans.

Types of Mortgage Loans

Conventional Fixed-Rate Mortgage Loans

Conventional loans are loans that are not backed by the government. To qualify for a conventional mortgage loan, you will need to be a borrower with a good credit score, steady income, and a low debt to income ratio. You will also be required to make a down payment on your home. The amount of down payment is dependent on the particular mortgage lender. To avoid needing private mortgage insurance (PMI), borrowers will typically need to make a 20% down payment. You will receive a set interest rate for the life of your loan, usually from 10 to 30 years terms. This means your monthly payment stays the same throughout the life of the loan. The lower the term, the less you will pay in interest, but the higher your monthly payment. The higher the term, the more interest, but the lower your monthly payment. Fixed-rate mortgage loans are best for buyers who plan on staying in the home for many years. They can be used on a primary home, second home, or investment property.

Adjustable-Rate Mortgage Loans (ARMs)

Adjustable-rate loans have a variable interest rate, which fluctuates over the term of the loan. This provides less stability than a fixed-rate mortgage loan. They typically offer a lower initial rate than a fixed-rate mortgage loan but will increase as the Prime rate increases. The fluctuating interest rate can go up or down based on market conditions. ARM loans are a good option for home buyers who don’t plan on living in a home for more than a few years. They can take advantage of the lower interest rate, before selling or refinancing.  Some adjustable-rate loans have a cap on how high your interest rate can go each month and over the life of the loan. The con of an adjustable-rate mortgage loan is that the payments could eventually become unaffordable if the interest rates increase significantly.

Federal Housing Administration (FHA) Mortgage Loans

Government insured FHA loans are ideal for low to moderate-income first time home buyers who can’t qualify for a conventional loan or don’t have a large down payment. An FHA loan may be able to help you realize your dream of homeownership. FHA loans require a lower down payment of as little as 3.5% of the home’s purchase price. The down payment amount varies based on your credit score. Be advised there are upfront and ongoing mortgage insurance premiums involved with an FHA loan. These FHA insured loans are available through FHA-approved lenders, such as Guthrie Community Credit Union.

Veterans Affairs (VA) Mortgage Loans

Another government-insured mortgage loan, the U.S. Department of Veterans Affairs (VA) guarantees mortgage loans for qualified military service members, veterans, and their spouses. Best of all, borrowers can finance 100% of the loan with no required down payment. There are also fewer closing costs and no need for PMI. VA loans do require a funding fee, which varies based on your military service category and loan amount. VA loans offer great terms and flexibility for qualified borrowers.

Deciding which mortgage loan is right for you

We’ve given you an idea of the different types of mortgage loans that may be available to you. In addition to rates, be sure to compare mortgage lenders and loan options. Remember that your credit history and the amount you have for a down payment can affect your mortgage loan options. When shopping lenders, compare the interest rate, loan term, loan type, down payment required, and all costs and fees.

Choosing a mortgage can be complicated. A qualified mortgage lender at your local credit union can help you better understand the qualification requirements of the different mortgage loans. Feel free to contact Guthrie Community Credit Union for help selecting a mortgage loan that fits your budget, needs, and goals. Guthrie provides mortgage pre-qualification, low rates, and expert advice to help guide you through the mortgage loan process. It’s important to consider all of the options available to make the right choice. Guthrie Community Credit Union is here for you.