Which Loan is Right For You?

Choosing the right loan can save you thousands of dollars on your loan.

Fixed-Rate Home Loans

Homebuyers or Homeowners with a solid financial profile who want a consistent and predictable monthly payment and plan to stay in their forever home should consider this type of loan.

Fixed-rate mortgages are the most common type of home loan. Fixed-rate mortgages are offered in 15- and 30-year fixed-rate terms. Your interest rate will never change, though the principal and interest portion of your monthly mortgage payment will change as the loan amortizes. The amount you pay before taxes and insurance will remain the same, however. That said, your property taxes and home insurance premiums may change and could raise your escrow payment.

If you have less than 20% down payment when you close on your loan, your lender will requir you to pay private mortgage insurance (PMI). PMI is a type of insurance that protects your lender if you default on your loan. The good news is that you can cancel PMI once you reach 20% equity in your home.

Fixed-rate conventional loans keep the same interest rate throughout the entirety of the loan. Once you lock in your interest rate, it won't change, even if market rates go up or down. This also means that your monthly payment will stay the same each month.

Conventional Loans

A conventional loan is simply a mortgage loan offered by a private lender, without the incentive of government-backing.

Many home shoppers believe that they need at least a 20% down payment to buy a home with a conventional loan. This isn't true. It's possible to get a conventional mortgage with as little as 3% down. People sometimes confuse the idea that 20% is the optimal down payment with the 20%- down-to-avoid-PMI requirement.

Conventional loans tend to have stricter credit score and debt-to-income ratio (DTI) qualifications. You need a credit score of at least 620 points and your DTI ratio should be less than or equal to 50% to qualify for a loan with most mortgage lenders.

FHA Loan

Buyers who want to buy a home with as little as 3.50% down payment or have a lower credit score should consider an FHA loan.

The most widely available government-backed loans are FHA loans. There’s a common misconception that FHA loans come directly from the government, but they don’t. Like conventional loans, FHA loans are offered through private lenders incentivized by government-backed home loan insurance.

If you’re concerned that your previous bad credit history might keep you from buying a house, an FHA mortgage might be the answer. An FHA mortgage can help you buy a home when you have a lower credit score.

That’s because government-backed home loans offer lenders government insurance against a borrower’s default, so lenders will offer loans they would otherwise find too risky. You can get an FHA loan with a credit score as low as 580 points, with at least a 3.5% down payment.

With an FHA loan, you need to pay an upfront mortgage insurance premium as well as a monthly mortgage insurance premium (MIP) payment. Unlike PMI, you cannot cancel your MIP payments – they stick with you until you make the last payment on your loan.

If you make a down payment of at least 10%, an MIP will be on your loan for 11 years. For this reason, many homeowners refinance their FHA loans into conventional mortgages once they reach 20% equity in their property.

VA Loan

VA loans are a government-backed loan exclusively for our nation’s veterans, active members of the armed forces and select surviving spouses. To be considered, you must be able to produce a certificate of eligibility. A VA loan can allow you to buy a home with no money down and you can also avoid PMI payments.

You'll need to pay a small VA funding fee when you get your loan but select veterans may be able to get a waiver to remove the fee. VA loans also have lower interest rates than comparable government-backed loans, which can make them even more affordable.

To qualify for a VA loan, you must meet service requirements. Any one of the following statements must be true before you can get a VA loan:

  • You've served 90 consecutive days of active military duty during wartime.
  • You've served 181 consecutive days of active military duty during peacetime.
  • You've been an active member of the National Guard or Reserves for at least 6 years or you served 90 days under Title 32, at least 30 of which four consecutive.
  • You're the surviving spouse of a service member who lost their life in the line of duty or because of a service-related injury.

You or your spouse must move into your new property within 60 days of closing to use a VA loan to buy a home. There are exceptions to this. For example, you may be deployed and unable to move in during that time.

You must also buy a primary residence with your loan. You cannot use a VA loan to buy a second home or investment property.

Jumbo Loans

A jumbo loan is a high-value loan that exceeds the GSEs’ conforming loan limits, which are typically lower than non-conforming loan rates. These are the most common type of nonconforming loan.

But jumbo loans – commonplace in the more expensive metropolitan areas of the country – increasingly have interest rates comparable to conforming loans. Limits on jumbo loans vary by lender.

Jumbo loan down payments required will vary depending on loan amount and credit score. You may need 10.01% down to qualify.

Lenders will carefully look at your finances and cash reserves before they give you a loan. Your lender may require you to have up to 12 months of mortgage payments in your savings account before you can get a loan. You'll also need a higher credit score compared to other loan types.

The Bottom Line: The Right Loan’s Out There For You! 

If you’re just starting your journey to home ownership, there’s a lot to learn and we are here to help you!