After you decide to start seriously shopping for a home, the next big step is to start shopping for a mortgage. But where do you even begin? Rates, interest, lenders, down payments—with so much to figure out, no one could blame you for feeling overwhelmed. A good place to start is by figuring out what type of mortgage might be best for you. From conventional to non-conventional and everything in between, one of these is sure to be a perfect fit.     

Conventional Mortgage

A conventional (sometimes called conforming) mortgage is a loan that is not backed by a government agency. Instead, conventional mortgages adhere to guidelines set by two private loan agencies, Freddie Mac and Fannie Mae. These guidelines include a maximum dollar limit, as well as criteria that must be met in order to qualify for the loan, such as a minimum credit score.  

There are two types of conventional mortgage: adjustable rate and fixed rate. Adjustable rate mortgages are 30-year loans with interest rates that can change depending on market rates. One of the benefits of an adjustable rate mortgage is that your initial interest rates are usually lower, but you do run the risk of higher monthly payments if market rates increase. Fixed-rate mortgages are exactly the opposite—your interest rate will remain the same over the life of the loan. That interest rate will likely be higher than it would with an adjustable rate mortgage, but you won't have to worry about your monthly payment going up.

FHA Loan

Unlike conventional mortgages, FHA loans are backed by the Federal Housing Administration. The purpose of these loans is to provide opportunities for those with limited down payment funds or less-than-pristine credit. That means that FHA loans are easier to qualify for than conventional loans, but they also have a lower loan limit, and you'll have to pay mandatory mortgage insurance premiums as well.

USDA Loan

Another government-backed loan, USDA loans are insured by the U.S. Department of Agriculture and cater to low- and moderate-income homebuyers looking for homes in designated rural areas. These loans don't require a down payment or mortgage insurance, but there are income limitations, and you will have to pay an annual guarantee fee. Additionally, some USDA loans have limitations on property size and/or amenities.

VA Loan

The final government-insured loan on our list, VA loans, are backed by the U.S. Department of Veteran Affairs. As you might have guessed, VA loans provide mortgages for qualifying military servicemembers, veterans, and spouses. In most cases, VA loans don't require a down payment. There's no income or loan limits and no mortgage insurance requirement, but you will have to pay a VA funding fee. Additionally, you'll have to use VA-approved appraisers, and VA-approved builders if you're looking to build your own home.

Jumbo Mortgage

Jumbo mortgages are similar to conventional mortgages, but—as the name suggests—are much larger. Typically used to buy luxury homes, jumbo loan amounts are higher than conventional loan limits—possibly up to 1 million or more if you're eligible. Jumbo mortgages also differ from conventional mortgages in that they don't conform to the guidelines that we discussed earlier. They have a stricter credit score requirement (typically 680 and above), and you'll have a larger down payment as well, often at least 20%.

The best mortgage option for you depends on your financial situation and what kind of home you're hoping to purchase. Factors like your credit score, income, debt, and estimated purchase and refinancing costs are all important to know before you begin shopping around for a mortgage. However, you don't have to do it alone. Our knowledgeable agents, along with our partner CMG Financial, can help you take the first steps. From using CMG Financial's online tools to calculate an estimated monthly payment to setting up a mortgage bank account that will help you pay off your loan faster, we'll make sure that you have everything you need to go from "where do I start?" to "home sweet home."

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The Masiello Group is a second-generation family company that has been a trailblazer in New England real estate since 1966. With now more than 35 offices throughout northern New England, we're the largest residential real estate firm north of Boston to offer a complete suite of home services, including buying, selling, mortgage, title, insurance, relocation, and more.

Our agents are eager and excited to meet your real estate needs!

You can find more information on today's market and other real estate trends by reading our blog weekly at https://www.masiello.com/news-and-updates/.