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5 different mortgage types: how to know which is best for you

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This story is sponsored by Mountain America. Learn more about Mountain America.

For many people, owning a home is all part of the American dream, but finding and qualifying for the right mortgage can be a nightmare.

To help ease the stress of finding the right mortgage, here’s a list of five options to consider.

Conventional loans

A lot can be said about this type of loan simply from its name. Notice it’s not called the “Wild and Crazy Risk-taking Loan.” Conventional loans are considered fairly conservative and straightforward. Bankrate suggests that because they generally pose fewer hurdles than government loans (such as Federal Housing Administration or Veterans Affairs mortgages), going conventional may streamline the lending process.

Conventional loans also offer competitive interest rates and low mortgage insurance options.

The only catch? You need an excellent credit score and a large down payment.

Government loans

If you find your credit score lacking and a down payment out of the picture, a government loan may be the one for you. Under the umbrella of government loans there are several options, with FHA, VA and U.S. Department of Agriculture loans being some of the most popular.

The U.S. Department of Housing and Urban Development suggests FHA loans are perfect for those with lower credit scores who would like lower down payments. While typical home loans require up to 20 percent down, with an FHA loan, you can put down as little as 3.5 percent.

Following similar guidelines as FHA loans, VA loans are a good option for those who have served their country and need even easier qualifications for a loan. Realtor.com says veterans may purchase a home with poor credit, no money down and no mortgage insurance requirements – so long as the house meets “minimum property requirements,” (meaning no fixer-uppers).

USDA loans are intended to help low-income families “obtain decent, safe and sanitary housing.” To qualify for this type of loan, you must live in a rural area and meet specific income requirements, as outlined by the USDA.


Construction loans

Let’s say you want to start from scratch and build your dream HGTV-worthy home from the bottom up. A construction loan can help you with that.

There are two main types of construction loans: one- and two-step. With one-step loans, the same lender is used for both construction and the mortgage, meaning paperwork is filled out once with only one set of closing costs. With a two-step loan, the mortgage isn’t closed on until the house is built. Mountain America Credit Union recommends the two-step option if you are building a custom home with fluid plans and no solid time frame for completion.

Be advised, however, that qualifying for a construction loan is difficult. Lenders will want detailed plans of the home and the contractors involved, not to mention proof of excellent credit.

Jumbo loans

Buying a jumbo-sized house? You probably need a jumbo loan. Depending on where you live, these are home mortgages of more than $424,100 or $636,150, according to Bankrate. Not surprisingly, these types of loans also require excellent credit and larger down payments — usually around 20 percent or more — and higher fees from the lender.

Mini mortgages

Perhaps you’re not looking to buy a home, but you’re considering refinancing your current mortgage. Mountain America offers what’s known as a mini mortgage with shorter loan terms than a standard home loan. This is a great option if you want to pay off your loan sooner or lower your interest rate if you have a dozen or so years left on your mortgage.

Finding the best mortgage for you can seem overwhelming. For help in getting the right loan for your needs, contact the mortgage specialists at Mountain America Credit Union today.