This guide can help answer your questions and even tell you how to get prequalified for a mortgage.
1. Conventional loans
The most common type of mortgage is a "conventional" loan, which is any mortgage not insured by or sponsored by the U.S. government.1 These loans go through conventional channels — that is, financial institutions — for approval.
Because conventional loans are not guaranteed by the government, they can be more challenging to qualify for. Financial institutions will consider your income level, credit score, debt, and how much cash you have for a down payment.
There are two types of interest rate terms offered on conventional loans:
- Fixed-rate mortgages offer an interest rate that is unchanged for the life of the loan, so your monthly payment remains the same for the life of the loan. In other words, no surprises.
- Adjustable-rate mortgages (also known as ARMs) offer a fixed interest rate only for a designated period of time (usually 3, 5, or 7 years). Once the fixed-rate period ends, the rate will be adjusted (typically yearly) to reflect prevailing mortgage interest rates. ARMs typically offer lower initial interest rates than conventional loans.2 However, rates — and therefore your monthly payment — may go up or down over time, depending on future interest rates.
2. FHA loans
A Federal Housing Administration (FHA) loan3 is a government-backed, fixed-rate mortgage loan. FHA loans are provided through banks that have met the requirements set forth by the Department of Housing and Urban Development.4
FHA loans were created to make it easier for lower- to middle-income buyers to purchase homes.5 The standards for qualifying for an FHA loan are typically less stringent than conventional loans, because the loan is insured by the government. With FHA loans, borrowers can put as little as 3.5% of the purchase price as the down payment. Borrowers are required to pay for the FHA mortgage insurance, but it can be rolled into the loan.
3. VA loans
The U.S. Department of Veteran Affairs (VA)6 also has its own home loan program. Available to veterans, active military, and eligible spouses, VA loans are government-sponsored, fixed-rate mortgages that allow qualified borrowers to purchase a home with no down payment.
To qualify, you have to meet the military service requirement plus debt-to-income requirements set forth by the individual bank.7 The loans are provided by private lenders, but because the government guarantees them, the lender is able to provide borrowers with more favorable interest rates and financing of up to 100% of the value of the home. VA loans don't require mortgage insurance, but they may require an additional fee to process the loan.
4. USDA mortgages
The USDA has a rural housing service8 that provides fixed-rate mortgage loans to borrowers who live in rural areas, as defined by the USDA.9 These loans offer favorable interest rates and a zero down payment option to buyers with low to moderate incomes. Income thresholds vary by region and household size.10 This type of loan is designed to help the rural economy and assist buyers who might not otherwise qualify for a mortgage. USDA loans are not limited to first-time homebuyers.
Narrowing it down
While there are a variety of mortgage loan options, you don't have to make this decision on your own. For help figuring out which mortgage loan is best for you, get in touch with a Synovus mortgage specialist today. We're here to help you get the financing you need to purchase your next home.