Not all mortgages are created equal. Here are the different types of mortgages you should know about:
Conventional home loans adhere to the maximum limits set by Fannie Mae and Freddie Mac, which are the agencies that back most U.S. mortgages. As mentioned, you’ll pay PMI if you fail to put down 20% on a conventional mortgage, but you may be able to put down as little as 3%. The borrowing limits for conventional mortgages change from year to year. In most of the U.S., the maximum conforming mortgage for one-unit properties is $510,400 in 2020.
These mortgages are backed by the Federal Housing Administration and are geared toward applicants who don’t have great credit or don’t have the funds for a substantial down payment. You can put as little as 3.5% down with an FHA loan if you have a 580 credit score or above. But, you pay certain premiums with an FHA loan (similar to PMI) that can make your mortgage more expensive.
These mortgages are available to active members of the U.S. military as well as veterans. VA loans don’t require a down payment and don’t charge PMI. There are, however, funding fees involved that get tacked onto your mortgage costs.
Backed by the U.S. Department of Agriculture, USDA loans help lower-income borrowers buy homes in rural areas. If you qualify, you won’t have to make a down payment on your home, but that home must be located in a designated zone (buying in a suburb alone does not guarantee that you’ll qualify).
These are conventional mortgages that exceed the maximum borrowing limits. Jumbo mortgages are harder to qualify for than conventional mortgages, and you’ll generally need at least a 10% down payment, if not 20%.
View more information: https://www.fool.com/the-ascent/mortgages/beginners-guide-home-loans/