Mortgage Options Available To You

William Miller |

If you’re currently in the market for a home, it will speed up the process considerably if you are familiar with the various mortgage options that are available to you. Finding a mortgage that suits your current financial needs can be challenging, but understanding the various types of mortgages available and their requirements can make the process less challenging.  Here are the most common types of mortgages, along with some of the requirements for each.

Conventional Fixed Rate Mortgage

A conventional fixed rate mortgage is the most popular type of mortgage. A fixed rate means that your interest rate will never change throughout the life of the loan. This ensures that your monthly payment remains the same. Requirements for a conventional fixed rate mortgage typically include:

  • A credit score of at least 620
  • A down payment of at least 5%
    • Mortgage insurance if your down payment is less than 20 percent

While these requirements can vary from lender to lender, individuals interested in a conventional fixed rate loan should be able to if they meet these requirements.

Conventional Adjustable Rate Mortgage

Adjustable rate mortgages (ARM) have a fluctuating interest rate that can change from year to year, which means those individuals with an ARM should expect their payment to change yearly as well. An adjustable rate mortgage may be a good fit for someone just starting out that desires a smaller monthly payment for the first year of the loan. While there are some obvious benefits to an ARM, home buyers can often find themselves in trouble quickly if monthly payment rates rise too quickly. Requirements for an adjustable rate mortgage typically include:

  • A credit score of at least 620
  • A down payment of at least 5%
    • Mortgage insurance if your down payment is less than 20 percent. Generally the mortgage insurance will be higher with a adjustable rate compared to a fixed rate mortgage.

FHA Loans

FHA loans are a good option for first-time homebuyers, or those without a large down payment. FHA loans are backed by the U.S. Government and insures the lender for any losses from a borrower default. Requirements for a FHA loan include:

  • Credit scores of at least 580
  • A down payment of at least 3.5%
    • While conventional loans with less than 20 percent down also require mortgage insurance, it can typically be canceled when home equity rises, payment of FHA mortgage insurance is required for at least the first 11 years of the loan.

VA Loans

VA Loans are another way to finance a home, but they’re only available to military service members and family. Like FHA loans, VA loans are guaranteed by the U.S. Government (Veterans Administration) from losses incurred through buyer default. Requirements for a VA loan include:

  • No down payment, unless it is required by the lender
  • One-time VA funding fee (can be included in the loan)
    • If you receive VA disability compensation, you are exempt from the VA funding fee
  • No mortgage insurance for the VA loan

Eligible individuals have a lifetime benefit, which means that they can reuse the VA loan option multiple times.

USDA Loans

Though most people are unaware of this loan program, the USDA offers a program for those looking to purchase a home in a rural area. USDA loans are primarily for low-income home buyers to increase the economy in certain areas. USDA loans are issued through lenders and are backed by the U.S. Government (Department of Agriculture). Requirements for a USDA loan include:

  • Credit score of at least 640
  • Household income is equal to or less than 115% of the area median income
  • Must be primary residence
  • Property must in an eligible area

Buying a home can be a stressful event, but knowing what to expect can significantly reduce stress levels. Happy house hunting! 


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes.*