A mortgage is a loan from a bank or financial institution that helps a borrower purchase a home. It is likely the largest and longest loan you’ll ever take out. Mortgages have three main elements that are combined in different ways, depending on the borrower and lender — loan type, interest rate, and loan terms. Knowing how these pieces work together can help you pick the right mortgage.
Conventional loans are a bit harder to qualify for, but they typically cost less over time than an FHA loan. You can avoid paying private mortgage insurance if your down payment is 20% or more. This can save you hundreds of dollars on your monthly mortgage payment.
FHA loans are the easiest to qualify for. They require a low down payment and FICO® score, but they can cost more over time because they require you to pay a fee called mortgage insurance. You can get an FHA loan from any FHA-approved lender. These loans are insured by the Federal Housing Administration (FHA), which just means that the FHA protects lenders against loss from homeowners who default on their loans.
VA loans are exclusively for veterans, eligible surviving spouses and active-duty service members. VA loans offer the opportunity to buy a home with no down payment or private mortgage insurance.
Jumbo loans are mortgages that exceed the conventional loan limit. This simply means that you’ll need a jumbo mortgage if your loan amount is between $484,351 and $3 million.
