Types of Home Loans: Which Option Works Best for You?

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You need a home loan — more commonly known as a mortgage, but which type of loan is best for your financial situation? Make sure you understand the ins and outs of each home loan option before you launch into the search for your dream home. 

Conventional Mortgages

Conventional loans are funded by private financial lenders. They’re the most common type of mortgage because they don’t have strict regulations on income or home type, and location. However, they do require stringent credit score and debt-to-income ratio numbers. 

This type of loan may be best for you if you have a minimum credit score of 620 and want to pay as little as 3% for a down payment. Most conventional loan customers don’t qualify for a government-backed loan and want to take advantage of lower interest rates. 

Government-Backed Loans

Some mortgages are backed by the government, including FHA, VA, and USDA loans. Many qualifying home buyers prefer government-backed loans because they are available without the strict qualification requirements of conventional loans. If you have a lower credit score, limited cash to offer for a down payment, or a higher debt-to-income ratio, you may be able to qualify for an FHA, VA, or USDA loan, even if you’ve been denied by a conventional mortgage lender. 

Here’s a quick overview of the most common government-backed loans available:

  • FHA loans are insured by the Federal Housing Administration for buyers with a credit score as low as 580 and a down payment of 3.5%.
  • USDA loans are insured by the United States Department of Agriculture with lower mortgage insurance requirements than FHA loans. You can buy a home with no money down through a USDA loan as long as you meet income requirements and purchase in a suburban or rural area. 
  • VA loans are insured by the Department of Veterans Affairs for veterans of the Armed Forces or National Guard. This type of loan offers unique benefits such as lower interest rates and $0 down.

Fixed-Rate and Adjustable-Rate Loans

Fixed and adjustable-rate mortgages are the opposite of each other. A fixed-rate mortgage holds the same interest rate through the full duration of the loan. An adjustable-rate mortgage, on the other hand, uses rates that change with the market. 

Many young homebuyers choose adjustable-rate loans for their starter homes to access below-market rates for a finite introductory period. Adults purchasing a home for the long term usually prefer fixed-rate mortgages to make budgeting more predictable. 

Ask the Experts Before You Buy

If you’re getting ready to buy a home in Tampa, Florida, you need a team of real estate experts in your corner. At Benefit Title Services, we’re committed to helping homeowners achieve seamless transactions with superior customer care and expert support. We are here to guide you through your mortgage application and qualification. Contact us today at 813-251-1420 to learn more.