Are you ready to embark on the journey of homeownership but unsure which mortgage type is right for you? Whether you're a first-time homebuyer or a seasoned property owner, understanding the diverse array of mortgage choices available to you can be a bit overwhelming. From fixed-rate and adjustable-rate mortgages to FHA and VA loans, each option comes with its own set of advantages and considerations.
In what follows, we'll help you understand terminology relevant to a few of the most common mortgage types, explore the pros and cons of each and empower you to make informed decisions tailored specifically to your needs, goals and current financial situation. At Busey, we're proud to simplify your homebuying process by bringing clarity to the complex.
- Conventional Mortgages. Conventional mortgages are the most common type of home loan and are not insured or guaranteed by the government. These loans typically require a down payment of at least 3% to 20% of the home's purchase price and have stricter credit and income requirements than government-backed loans. Conventional mortgages offer flexibility in terms of loan terms and can be used for primary residences, second homes and investment properties.
- Fixed-Rate Mortgages. A fixed-rate mortgage offers stability and predictability by locking in the same interest rate for the entire duration of the loan, typically 15 or 30 years. This means your monthly principal and interest payments remain constant throughout the life of the loan, making it easier to budget and plan for the future. Fixed-rate mortgages are ideal for homeowners who prefer consistency and want protection against rising interest rates.
- Adjustable-Rate Mortgages. Adjustable-rate mortgages, or ARMs, offer an initial fixed interest rate for a specified period, typically 5, 7 or 10 years, before adjusting annually—or sometimes, even more frequently—based on market conditions. ARMs often start with lower interest rates than fixed-rate mortgages, making them attractive to borrowers who plan to sell or refinance before the rate adjusts. However, it's essential to understand the potential for higher payments if interest rates rise in the future.
- FHA Loans. FHA loans are insured by the Federal Housing Administration and are designed to help first-time homebuyers and those with less-than-perfect credit or limited down payment funds. These loans require a down payment as low as 3.5% of the purchase price and have more lenient qualification requirements than conventional mortgages. FHA loans offer competitive interest rates and can be used for primary residences.
- VA Loans. VA loans are exclusively available to eligible veterans, active-duty service members and their spouses and are guaranteed by the Department of Veterans Affairs. These loans can offer several benefits, including no down payment requirement, competitive interest rates and no private mortgage insurance (PMI) requirement. VA loans may be a good option for military members and their families looking to buy a home with favorable terms and conditions.
- USDA Loans. USDA loans, also known as Rural Development loans, are backed by the U.S. Department of Agriculture and are designed to help low-to-moderate-income borrowers purchase homes in eligible rural and suburban areas. These loans offer 100% financing, meaning no down payment is required, and they typically have lower interest rates than conventional mortgages. USDA loans may be an ideal option for buyers looking to purchase a home in a rural area.
- Jumbo Loans. Jumbo loans are mortgages that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. These loans are typically used to finance higher-priced homes and require larger down payments and higher credit scores than conventional loans. Jumbo loans offer flexibility in terms of loan amounts and can be customized to meet the needs of high-net-worth individuals and luxury homebuyers.
Choosing the right mortgage is a significant decision that requires careful consideration of your financial situation and homeownership goals. At Busey, our team of experienced mortgage professionals is here to guide you through the process and find the perfect mortgage solution for you. To learn more about our mortgage offerings and take the first step toward owning your dream home, visit busey.com/mortgage.
*Subject to property and credit approval. VA and USDA loans have individual requirements and documented eligibility may be required. Restrictions and limitations apply. For down payments less than 20% on conventional loans, Mortgage Insurance (MI) may be required, and MI charges may apply. FHA loans require an up-front mortgage insurance premium (UFMIP), which may be financed, or paid at closing, and an FHA annual mortgage insurance premium (MIP) paid monthly will also apply.