Making Sense of Mortgages

There are several types of mortgage loans available to home buyers these days and knowing which one to choose means understanding what’s out there. Below is a step-by-step explanation to help you make sense of everything that goes into picking your best mortgage option.

Step 1: Fixed Versus Variable Interest Rates


The first step to understanding mortgages is knowing the difference between fixed or variable interest rates.

Fixed Rate Mortgage: This means you’re making monthly payments for a specified time period at a set or “fixed” interest rate. 

Variable Interest Rate Mortgage: Also called an Adjustable Rate Mortgage (ARM), they are typically used when rates are higher so that they can adjust when rates decrease.

In most situations, going with a fixed rate mortgage is a better choice. Especially right now when mortgage rates are relatively low.

Step 2: The Length Of The Loan

The next part to making sense of mortgage loans is getting a grasp on their different lengths. The most common type is the 30-year fixed mortgage. This would mean you’re making monthly payments for 30 years at a fixed interest rate. 

The length of your mortgage depends on what and how much you can pay each month. Mortgages that are 15 years in length work best for buyers that are ready to make larger payments so that they can pay off a mortgage sooner.

A mortgage expert can work with you to help identify if a 30 year fixed rate mortgage fits your financial outlook or if something like a 15 year adjustable rate mortgage (ARM) makes more sense.

Step 3: Different Types of Mortgage Loans

 The third piece to understanding mortgages are knowing the different types of mortgage loans that are available. 

Here’s the breakdown:

Conventional Loan 

The conventional mortgage typically requires a good credit score and a down payment that’s, at minimum 5% of the total loan. The specific amount needed for your down payment could vary as there are a wide array of combinations for loan terms and types. Each mortgage lender can walk you through the amounts that may be needed to secure your dream home.

FHA loan 

For buyers that do not have a ton of cash to put down, an FHA loan might be a better option. 

The buyer still has to have a good credit score, proof of employment and income, and the ability to put at least 3.5% down though to even qualify for this type.

This kind of loan also comes with a list of regulations and parameters. The home you buy with it has to pass a special, five-point inspection. Additionally, buyers are not allowed to use any portion of their FHA loan (assuming its the standard FHA option) for renovations. 

Here’s the full scope of the FHA loan program if you want more details.

VA Loan 

This type of federally guaranteed loan is specifically for qualified veterans of the United States. 

Veterans who wish to take advantage of this must have a certain credit score and income to qualify. 

In terms of money down, there are certain circumstances where a VA loan would allow a veteran to purchase a home with no down payment. 

If you think you may be eligible for a VA Loan, then you’ll definitely want to go here for the specifics. You can also check out this complete guide to VA Loans from Veterans United.


The last type of mortgage loan you might encounter is the USDA loan.

This is another option through the federal government that encourages homeownership in specific, usually rural, regions of the country. 

To get this type of loan, a buyer must still meet certain credit and income requirements. You can click here to check and see if a property is in a location that’s eligible for a USDA loan.


Mortgages often seem much more complicated than they really are. Even though there are a lot of variables that go into them, they can be easily broken down into three major parts to make them easier to understand. As you approach the home buying process, if you begin to feel overwhelmed by the mortgage lingo, be sure to reference these three steps. They should ensure you feel better about finding a mortgage that fits your needs the best.


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