Your choice of mortgage will be dictated by your goals and your resources. It’s important to compare different types of home loans. Your choices — government or private, fixed or adjustable, 15- or 30-year term — depend on your goals and the strengths and weaknesses of your application.
Home buyers who don’t have a lot of cash should first look for a government-backed mortgage that allows a small down payment, or a community mortgage from Fannie Mae or Freddie Mac. Examples include the FHA loan, insured by the Federal Housing Administration, VA loan, guaranteed by the U.S. Department of Veterans Affairs, and USDA loan, backed by the U.S. Department of Agriculture, My Community Mortgage, from Fannie Mae, and Home Possible from Freddie Mac.
The FHA loan allows a down payment as low as 3.5 percent of the home’s purchase price. The VA loan and USDA loan can be used to buy a home with no down payment at all. Community home loans require three percent down and have lower mortgage insurance premiums, but they are restricted to people whose income falls in the low-to-moderate range.
Buyers who have a bit more cash should consider a conforming loan from Fannie Mae or Freddie Mac. Fannie and Freddie are corporations that have been controlled by the federal government since falling into financial trouble a few years ago. They purchase loans that conform to their guidelines (hence the term “conforming loans”) from lenders. These loans are available with a down payment as small as five percent (three percent for community mortgages) of the home’s purchase price.
There are size limits to the above-mentioned loans, and other government-created guidelines that borrowers must meet. Those who want to purchase more expensive properties or choose loans with non-standard features can select jumbo or non-conforming loans. These are sold by private lenders that create their own guidelines.