Choosing the right mortgage is just as important as choosing the right home. Here's a breakdown of the most common mortgage types.
Conventional Loans
**Best for:** Buyers with good credit and stable income
Key features:
- Down payment: 3-20%
- Requires PMI if less than 20% down
- Competitive interest rates
- Flexible loan amounts
Pros:
- Lower costs if you have 20% down
- Available for primary homes, second homes, and investment properties
Cons:
- Stricter credit requirements
- PMI adds to monthly payment if less than 20% down
FHA Loans
**Best for:** First-time buyers and those with lower credit scores
Key features:
- Down payment: As low as 3.5%
- Credit score minimum: 580
- Mortgage insurance required
- Loan limits apply
Pros:
- Easier to qualify
- Lower down payment
- Acceptable credit history requirements
Cons:
- Mortgage insurance for life of loan (if less than 10% down)
- Property must meet FHA standards
- Loan limits may restrict in higher-priced areas
VA Loans
**Best for:** Veterans, active military, and eligible spouses
Key features:
- Down payment: $0
- No mortgage insurance
- Competitive rates
- Certificate of Eligibility required
Pros:
- No down payment needed
- No PMI
- More forgiving credit requirements
Cons:
- VA funding fee (can be rolled into loan)
- Only for eligible veterans and service members
- Property must meet VA standards
USDA Loans
**Best for:** Buyers in rural and suburban areas
Key features:
- Down payment: $0
- Income limits apply
- Property must be in eligible area
- Guarantee fee required
Pros:
- No down payment
- Lower mortgage insurance
Cons:
- Geographic restrictions
- Income limits
- Property must meet USDA standards
Fixed-Rate vs. Adjustable-Rate (ARM)
Fixed-Rate:
- Same interest rate for life of loan
- Predictable payments
- Best in low-rate environment
Adjustable-Rate (ARM):
- Lower initial rate
- Rate adjusts after initial period (5/1, 7/1, 10/1 ARM)
- Best if you plan to sell before adjustment
- Riskier if rates rise
Jumbo Loans
**Best for:** Luxury home buyers
Key features:
- Loan amounts above conforming limits ($766,550 in most of Minnesota)
- Stricter requirements
- Higher down payment typically required
How to Choose
Consider: 1. **Your down payment:** How much can you put down? 2. **Your credit score:** What loans do you qualify for? 3. **Your timeline:** How long do you plan to own the home? 4. **Your stability:** How secure is your income? 5. **Your goals:** Primary residence or investment?
Next Steps
Get pre-approved for multiple loan types to see which offers the best terms for your situation. We work with lenders who specialize in all mortgage types and can help you compare options.
Ready to explore your mortgage options? Contact Prime Location Realty Group for lender recommendations and personalized guidance.