LOAN SERVICES

1. Conventional mortgage loans

A conventional mortgage loan simply means any loan that conforms to standards set by Fannie Mae or Freddie Mac, or a government agency.

This type of home loan may be what automatically comes to mind when you think of a mortgage.

Pros of conventional mortgage loans:

• Private mortgage insurance (PMI) can be canceled after reaching 20 percent equity in the property
• Closing costs may be lower compared to other types of loans
• Can be used to purchase a first home, second home or investment property

2. Government-backed loan options

Government-backed mortgage loans are federally supported and issued by partner banks. Government-backing offers an insurance policy of sorts to a mortgage lender if you default on the loan for any reason.

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There are three main types of government-backed mortgage loans you might consider:

• FHA loans. Designed for first-time and moderate-income buyers, Federal Housing Administration loans allow for a down payment as low as 3.5 percent with a 580 FICO score, or 10 percent down payment with a 500 credit score.
• USDA loans. United States Department of Agriculture loans allow buyers in designated rural areas to buy a home with no down payment, if they're income-eligible. 
• VA loans. Veterans and their families can use VA mortgage loans to buy a home with no down payment and no private mortgage insurance. 

3. Jumbo mortgage loans

Jumbo loans, or nonconforming loans, have borrowing limits that exceed those specified for conventional mortgages.

This type of loan may be more common if you're buying a home in a high cost of living area, where property values are well above the national average. The limits can vary for a jumbo loan by state and municipality.

Pros of jumbo loans: 

• They can make it possible to purchase a more expensive home
• Even though the loan is larger, you can still get low interest rates

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Cons of jumbo loans:

• Credit score requirements tend to be higher, excluding borrowers with fair or poor credit
• Banks and lenders may require a larger down payment compared to a conventional or government-backed loan

A jumbo loan could be good if:

You want to buy a more expensive home and would rather have a single mortgage versus piggybacking multiple mortgage loans.

4. Fixed-rate mortgages

Fixed-rate mortgages are just what they sound like: mortgage loans with a fixed interest rate.

A 30-year fixed-rate mortgage is the most common type, though you may choose a 15-year or 20-year mortgage term instead.

Pros of fixed-rate mortgages:

• Monthly payments are predictable, making budgeting easier
• You can use a loan calculator to determine exactly how much your mortgage will cost in interest

5. Adjustable-rate mortgages

Adjustable-rate mortgage loans have an interest rate that's tied to an index or benchmark rate.

During the initial term of the loan, you pay one low rate. Once that period ends, the rate can adjust up or down, based on what's happening with the benchmark rate.

For example, you might have a 5/1 ARM, with a set rate for the first five years. Banks also offer 7/1 and 10/1 adjustable-rate mortgages.

Pros of adjustable-rate mortgages:

• You could save money initially with a low interest rate
• The savings could continue if your loan's benchmark rate remains low

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