Loans & Types of Loans

Research and find the best loan that meets your goals.

(This information is from

Types of Mortgage Loans:

1- Conventional loan – Best for borrowers with a good credit score

2- Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home

3- Government-insured loan – Best for borrowers who have lower credit scores and not much cash for a down payment

4- Fixed-rate mortgage – Best for borrowers who want the predictability of the same payments throughout the entire loan

5- Adjustable-rate mortgage – Best for borrowers who do not plan to stay in the home for a long time, and are comfortable with the risk of larger payments down the road

1- Conventional Loan

– Conventional loans are not backed by the federal government, and they come in two packages: conforming and non-conforming.

Conforming loans – As the name implies, a conforming loan “conforms” to a set of standards put in place by the Federal Housing Finance Agency (FHFA). The standards include a range of factors about your credit and debt, but one of the main pieces is the size of the loan. For 2022, the conforming loan limits are $647,200 in most areas and $970,800 in more expensive areas.

-Non-conforming loans – These loans do not meet FHFA standards. They might be for larger homes, or they might be offered to borrowers with subpar credit. Some non-conforming loans are designed for those who have gone through major financial catastrophes such as a bankruptcy.


Pros of conventional loans

– Can be used for a primary home, second home or investment property

– Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher

– Can ask your lender to cancel private mortgage insurance (PMI) once you’ve reached 20 percent equity, or refinance to remove it

– Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac-Sellers can contribute to closing costs

2 – Jumbo Loan

Jumbo mortgages are appropriately named: These are loans that fall outside FHFA limits. Jumbo loans are more common in higher-cost areas such as Los Angeles, San Francisco, New York City and the state of Hawaii. More money means more risk for the lender, so these generally require more in-depth documentation to qualify.

Pros of jumbo loans

– Can borrow more money to buy a more expensive home

– Interest rates tend to be competitive with other conventional loans

Cons of jumbo loans

– Down payment of at least 10 percent to 20 percent needed

– A FICO score of 700 or higher typically required

– Cannot have a DTI ratio above 45 percent

– Must show you have significant assets in cash or savings accounts

Who should get a jumbo loan?

If you’re looking to finance a sum of money larger than the latest conforming loan limits, a jumbo loan is likely your best route.

3 – Government-insured loan

The U.S. government isn’t a mortgage lender, but it does play a role in helping more Americans become homeowners. Three government agencies back mortgages: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans).

FHA loans – Backed by the FHA, these types of home loans help make homeownership possible for borrowers who don’t have a large down payment saved up or don’t have pristine credit. Borrowers need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment; however, a score of 500 is accepted if you put at least 10 percent down. FHA loans require two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan if you put less than 10 percent down, which can increase the overall cost of your mortgage. Lastly, with an FHA loan, the home seller is allowed to contribute to closing costs.

USDA loans – USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes. There are extra fees, though, including an upfront fee of 1 percent of the loan amount (which can typically be financed with the loan) and an annual fee.

VA loans – VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. VA loans do not require a down payment or mortgage insurance, and closing costs are generally capped and may be paid by the seller. A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing. Many lenders offer the lowest rates possible on VA loans, and some are willing to accept lower credit scores.

Pros of government-insured loans

– Help you finance a home when you don’t qualify for a conventional loan

– Credit requirements more relaxed

– Don’t need a large down payment

– Available to repeat and first-time buyers

– No mortgage insurance and no down payment required for VA loans

Cons of government-insured loans

– Mandatory mortgage insurance premiums on FHA loans that cannot be canceled unless refinancing into a conventional mortgage

– Loan limits on FHA loans are lower than conventional mortgages in most areas, limiting potential inventory to choose from

– Borrower must live in the property (although you may be able to finance a multi-unit building and rent out other units)

– Could have higher overall borrowing costs

– Expect to provide more documentation, depending on the loan type, to prove eligibility

Who should get a government-insured loan?

If you cannot qualify for a conventional loan due to a lower credit score or limited savings for a down payment, FHA-backed and USDA-backed loans are a great option. For military service members, veterans and eligible spouses, VA-backed loans can be a good option — often better than a conventional loan.

4  – Fixed-rate mortgage

Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders allow borrowers to pick any term between eight and 30 years.

Pros of fixed-rate mortgages

– Monthly principal and interest payments stay the same throughout the life of the loan

– Can more precisely budget other expenses month to month

Cons of fixed-rate mortgages

– Generally need to pay more interest with a longer-term loan

– Interest rates typically higher than rates on adjustable-rate mortgages (ARMs)

Who should get a fixed-rate mortgage?

If you are planning to stay in your home for at least five to seven years, and want to avoid the potential for changes to your monthly payments, a fixed-rate mortgage is right for you.

5 – Adjustable-rate mortgage

Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. For example, you might see a 7-year/6-month ARM, which means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. If you consider an ARM, it’s essential to read the fine print to know how much your rate can increase and how much you could wind up paying after the introductory period expires.

Pros of ARMs

– Lower fixed rate in the first few years of homeownership (although this isn’t a guarantee; as of late, 30-year fixed rates have actually been keeping pace with 5/1 ARMs)

– Can save a substantial amount of money on interest payments

Cons of ARMs

– Monthly mortgage payments could become unaffordable, resulting in a loan default

– Home values may fall in a few years, making it harder to refinance or sell before the loan resets

Who should get an ARM?

If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home.

Other types of home loans

In addition to these common kinds of mortgages, there are other types you may find when shopping around for a loan:

– Construction loans – If you want to build a home, a construction loan can be a good choice. You can decide whether to get a separate construction loan for the project and then a separate mortgage to pay it off, or wrap the two together (known as a construction-to-permanent loan). You typically need a higher down payment for a construction loan and proof that you can afford it.

– Interest-only mortgages – With an interest-only mortgage, the borrower pays only the interest on the loan for a set period of time. After that time is over, usually between five and seven years, your monthly payment increases as you begin paying your principal. With this type of loan, you won’t build equity as quickly, since you’re initially only paying interest. These loans are best for those who know they can sell or refinance, or for those who can reasonably expect to afford the higher monthly payment later.

– Piggyback loans – A piggyback loan, also referred to as an 80/10/10 loan, actually involves two loans: one for 80 percent of the home price and another for 10 percent. Then, you make a down payment of 10 percent. These are designed to help the borrower avoid paying for mortgage insurance. While eliminating those PMI payments might sound appealing, keep in mind that piggyback loans require two sets of closing costs and two loans accruing interest. You’ll need to crunch the numbers to find out if you’re really saving enough money to justify this unconventional arrangement.

– Balloon mortgages – Another type of home loan you might come across is a balloon mortgage, which requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. At the end of that time, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared. You can use Bankrate’s balloon mortgage calculator to see if this kind of loan makes sense for you.

So where to get started?

First you need to decided if there is a specific bank or institution you would like to get your loan from. From there you can decide if you want a loan officr or mortgage broker.

Loan Officer vs. Mortgage Broker

A loan officer works for a bank, credit union, or another mortgage lender, and offers programs and mortgage rates from just this institution. A mortgage broker, in contrast, works on a borrower’s behalf to find the lowest available mortgage rates and the best loan programs available through multiple lenders.

We have many contacts in this industry to connect you with the right person. Give us a call and we can give you some options to a professional that specializes to meet your homeownership goals..

Top 10 Loan tips

(This information is from )

Buying a home can be a fun and exciting experience. But finding the right home is just one step in the process. Choosing the right home loan can be just as important. Here are some tips to help make finding the right home loan as easy as possible.

Tip #1 – Start saving for a down payment

Depending on your lender and the type of loan you choose, your required down payment can range from 2.25% to 20% of the purchase price of the home. Establishing a monthly budget will help you put away enough money for your down payment.

Once you’ve assessed what your budget will support, consider having money automatically deposited from your paycheck or bank account to a savings account to make it easier and more convenient to put aside money each month. An account like Discover Bank’s AutoSavers Plan can help you start saving today.

If you won’t be able to come up with a large down payment, then you should look into an FHA loan, which helps home buyers who can only make a small down payment.

Tip #2 – Check your credit score

Having a good credit score puts you in a position to attract the best deal on your home loan. So it’s a good idea to obtain a copy of your credit report before starting the home buying process. You will see what your credit profile looks like to potential lenders and can then take steps to improve your credit score if necessary.

You can receive one free copy of your credit report each year from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion – by visiting If you pay a small fee to the reporting agency, the credit report you receive will also include your credit score.

Tip #3 – Get your financial documents in order

When you apply for a mortgage, you will need to provide your lender with a number of financial documents. Having these documents already assembled will help accelerate the processing of your loan application. At a minimum, you should be prepared to provide your last two pay stubs, your most recent W-2, your last two years of tax returns, and current bank and brokerage statements.

Tip #4 – Utilize a mortgage calculator

Mortgage calculators are great tools for helping you understand how much home you can afford. They are very easy to use and can show you how much your monthly mortgage payment would be under different home price, down payment and interest rate scenarios. Check out a variety of our handy mortgage calculators.

Tip #5 – Learn how to compare offers

All mortgages are not created equal. Even if loans have the same interest rate, there could be differences in the points and fees that make one offer more expensive than another. It’s important to understand all of the components that go into determining the price of your mortgage, so you can accurately compare the offers being made. You can click here for a good explanation of the components of mortgage pricing.

Tip #6 – Start tracking interest rates

The interest rate will be one of the biggest factors in determining the cost of your mortgage. Interest rates for mortgages change almost every day and it is helpful to know which way they are heading.

Tip #7 – Get pre-qualified

Many real estate agents want you to be pre-qualified for a loan before they will start to work with you. The mortgage pre-qualification process is fairly simple, usually just requiring some financial information such as your income and the amount of savings and investments you have. Once you are pre-qualified, you will have a better sense of how much you can borrow and the price range of the homes you can afford.

Tip #8 – Understand the various loan options

Maybe your parents had a 30-year fixed-rate loan. Maybe your best friend has an adjustable-rate loan. That doesn’t mean that either of those loans are the right loan for you. Some people might like the predictability of a fixed-rate loan, while others might prefer the lower initial payments of an adjustable-rate loan. Every home buyer has their own unique financial situation and it’s important to understand which type of loan best suits your needs.

Tip #9 – Be prompt in responding to your lender

After you have applied for a home loan, it is important to respond promptly to any requests for additional information from your lender and to return your paperwork as quickly as possible. Waiting too long to respond could cause a delay in closing your loan, which could create a problem with the home you want to buy. Don’t put yourself in a position where you could end up losing your dream home, as well as any deposit you may have put down.

Tip #10 – Don’t mess up your credit during the loan processing

It’s not uncommon for lenders to pull your credit report a second time to see if anything has changed before your loan closes. Be careful not to do anything that would bring down your credit score while your loan is being processed. So, pay all of your bills on time, don’t apply for any new credit cards, and don’t take out any new car loans until your home loan has closed.

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