What Are the Main Types of Home Loans You Can Get?
Have you been trying to figure out what type of mortgage you should get? Tired of searching for “best mortgage lenders” and not finding any real answers? Welcome to IMCU’s quick and easy guide to home mortgage loans and lenders! We’ve got the answer for you so you can stop searching. Let’s dive in!
What Are the 5 Main Types of Home Loans You Can Get?
When considering home financing, credit unions offer a comprehensive array of mortgage options to cater to a diverse range of needs. Five common different loan types are:
- Conventional Mortgages
When you think about home loans, the first thing that probably comes to mind is a conventional mortgage. This type of home loan is a conforming loan, meaning the loan amount limitations are established annually by the Federal Housing Finance Agency. The loan guidelines are often set by the GSEs (Fannie Mae and Freddie Mac) or by the lender. If the loan to value exceeds 80% the loan may be that is not guaranteed or insured by a government agency but rather is backed by private insurer lenders like a credit union. These types of loans are often cost-effective and favorable for borrowers, although eligibility typically requires a strong credit history and financial stability. - Federal Housing Administration Loans (FHA)
These loans are an excellent option for first-time homebuyers or those with limited down payment capabilities. Thanks to government backing, FHA loans feature lower down payment requirements and more lenient credit qualifications. All FHA loans require the borrower to pay an up-front mortgage insurance premium. At IMCU, we’re proud to provide information about FHA loans, helping to increase accessibility to homeownership through this type of lending. - Fixed-Rate Mortgages
A steadfast choice, fixed-rate mortgages offer a consistent interest rate and monthly payment throughout the loan term. This is ideal for individuals who seek predictability in their financial planning. Although you can secure this type of mortgage through many different types of mortgage lenders, credit unions offer competitive rates with ideal terms, ensuring affordable homeownership. For example, here at IMCU, you’ll find fixed-rate conforming loans in terms of 10, 15, 20, or 30 years. - Adjustable-Rate Mortgages (ARMs)
ARMs are a more flexible option for people who anticipate changes in their income or plan to sell their house in the near future. These loans start with a fixed interest rate for a predetermined period, followed by adjustments based on market conditions. Credit unions offer caps to protect borrowers from excessive rate fluctuations. - Jumbo Loans
When purchasing a high-value property, potential buyers typically need to apply for a jumbo loan (also known as non-conforming loan) that exceeds conforming conventional loan limits. These loans provide flexible terms and competitive rates, enabling borrowers to finance larger homes or unique real estate investments.
What Is the Most Common Mortgage Type?
In the second quarter of 2023, data showed that conventional loans financed 73.7% of new home sales while FHA loans followed with 14.0% of new home sales. The most common type of conventional loan is the 30-year fixed-rate mortgage, which offers stability and predictability for borrowers. This type of mortgage is particularly appealing to homebuyers who plan to stay in their house for an extended period and want the peace of mind that comes with a consistent monthly payment.
It’s worth noting that the portion of a mortgage payment allocated to interest and principal changes over time. Initially, payments cover the interest but as the loan progresses, more of the payment goes towards the principal.
What Type of Home Loan Has the Lowest Down Payment?
As mentioned above, FHA loans typically offer the lowest down payment requirement. Since they are backed by the Federal Housing Administration, these loans may allow borrowers to put down as little as 3.5% of the home’s purchase price as a down payment. However, conventional loans backed by the GSEs have affordable housing and first time homebuyer programs allowing as little as 3% down payment for borrowers meeting the AMI (Area Median Income) requirements. This is significantly lower than the standard 20% down payment often required for conventional loans.
Which Types of Loan Services Do Credit Unions Offer?
At Indiana Members Credit Union, you’ll find a full suite of mortgage products including:
- Fixed Rate Mortgages
- FHA
- Adjustable Rate Mortgages
- VA
- USDA
- Manufactured Home Advantage® Loans
- Jumbo Loans