Your A-Z Guide to Mortgage Loan Options (2024)

Your A-Z Guide to Mortgage Loan Options (1)

Getting ready to buy a home? You should know that when it comes to home loans, one size does not fit all. Learn more about the mortgage loan options available and decide which is right for you.

Need a little extra guidance? Check out one of our upcoming first-time homebuyer webinars, at no cost or obligation to you.

Before we get into some more niche mortgage types, the two main types of mortgages are Fixed Rate Mortgage and Adjustable Rate Mortgage. A fixed rate mortgage is a type of real estate loan where the interest rate remains unchanged during the mortgage term. These mortgages are ideal for borrowers who want to lock in their rate and know what their monthly payment will be.

With an Adjustable Rate Mortgage, you may get a rate below market rate for a specific number of years, and then after that fixed period, it becomes adjustable after a set frequency (for example, annually or semiannually.) While this may sound risky in its unpredictability, there are many pros and cons to consider.

0% Down Home Loan

While a typical mortgage may require a significant down payment, some lenders, such as Service Credit Union, will offer a 0% down payment option for first-time homebuyers.

Additionally, Service Credit Union has a variety of down payment and closing assistance options for eligible buyers. Creditworthiness and debt-to-income ratio must be considered for this offer.*

USDA Rural Development Loan

The USDA Rural Development loan is a type of 0% down payment loan issued through the USDA loan program for eligible rural and suburban homebuyers (must be under a certain household income). This is a great option for low- to moderate-income buyers who don’t mind being outside of city limits – and you’d be surprised by how many areas qualify for that! Any area with a population of 35,000 or less can qualify for a USDA Loan, and many financial institutions participate in the program, including Service Credit Union*

VA Loan

If you’ve served your country, you may qualify for a no or low down payment loan with a below market interest rate. Veterans Affairs Home Loans are privately issued but government-backed mortgages for active and retired military members. Service Credit Union provides VA loans for our veteran members. They’re only for a primary residence, and your eligibility will depend on your credit score and income. Another advantage of a VA Loan compared to a conventional loan is that there is no monthly mortgage insurance.

Home Construction and Land Loans

Sometimes, finding your dream home isn’t in the cards – but that doesn’t mean you can’t build one! A home construction loan will give you the funds you need to purchase a home and build your home, while a land loan will – you guessed it – provide funding for borrowers to finance the land on which they will ultimately construct a residential property, whether it’s a primary residence or a second home. Learn more about construction loans.

Real Estate Rehab Loans

If, rather than building a home from scratch, you’d prefer to put some love into an existing home that might need a little work, a real estate rehab loan may be right for you. This unique program gives you cash for both the purchase and the renovation in one simple fixed-rate mortgage, with only one closing. To qualify for this loan at Service CU, you must hire a general contractor and submit renovation plans and specifications. When the renovations are complete, you continue to pay the same principal and interest that you have paid since purchasing the property.

3 2 1 Mortgage Options

With a 3-2-1 buydown mortgage, the borrower pays a lower-than-normal interest rate over the first three years of the loan. The loan interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. After the buydown period ends, the lender charges the full interest rate for the remainder of the mortgage term. Buydowns are often used by sellers, including home builders, to help buyers afford a property.

Jumbo Loan

If you’re looking at a property with a hefty asking price, you may need to apply for a jumbo loan. A jumbo mortgage is a home loan that exceeds conforming loan limits. Conforming loans are mortgages that conform to financing limits set by the Federal Housing Finance Agency (FHFA) and meet underwriting guidelines set by Fannie Mae and Freddie Mac, whereas nonconforming loans do not. Loans above the conforming limit are known as jumbo loans, and the terms and conditions of these mortgages can vary widely from lender to lender, including affecting the minimum down payment, qualifying criteria and mortgage rate. Many lenders will require a hefty minimum down payment for these loans, and factors such as debt-to-income ratio and creditworthiness will be considered. In 2023, the jumbo threshold is $726,200 in most U.S. locations, but can be much higher in some areas, including parts of New Hampshire and Massachusetts.

Let us help you find the mortgage type and mortgage term options that fit your needs! We have experienced mortgage lenders near you that will guide you through the process, from start to finish. Talk to one of our real estate lending specialists today.

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*Applicant subject to creditworthiness, debt-to-income, and property requirements. Please contact a mortgage specialist for additional program details and requirements.

Your A-Z Guide to Mortgage Loan Options (2024)


What is the minimum credit score to buy a house in Arizona? ›

Here are some general FHA loan requirements for Arizona. A credit score of 580 or higher: A lender may accept credit scores of 500-579 under certain conditions. A credit score lower than 580 will require a larger down payment. Minimum of two years employment: Must have verifiable, steady, and consistent income.

What is the easiest type of mortgage to get approved for? ›

Government-backed loan options, such as FHA, USDA and VA loans, are typically the easiest type of mortgage to get because they may have lower down payment and credit score requirements compared to conventional mortgage loans.

What is the safest and most popular type of mortgage loan? ›

Whether you opt for a 15- or 30-year fixed-mortgage, the main advantage is the same: predictability. With a fixed-rate loan, your interest will be the same in year one, year 10, and year 22. This security and stability is what makes fixed-rate mortgages the most popular type of mortgage in the United States.

How often does an underwriter deny a loan after pre-approval? ›

You may be wondering how often underwriters denies loans? According to the mortgage data firm, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.

How much is the monthly payment on a 300 000 mortgage? ›

Monthly payments for a $300,000 mortgage
Annual Percentage Rate (APR)Monthly payment (15-year)Monthly payment (30-year)
5 more rows

What credit score is needed to buy a $500000 house? ›

Expect to need a minimum credit score of 620+

What is the hardest home loan to get? ›

1. Conventional loans. A conventional loan is any mortgage that's not backed by the federal government. Conventional loans have higher minimum credit score requirements than other loan types — typically 620 — and are harder to qualify for than government-backed mortgages.

Which mortgage type requires the lowest down payment? ›

FHA loans. Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.)

What is the lowest down payment for a house? ›

For a Federal Housing Administration (FHA) loan, the minimum down payment is 3.5 percent with a credit score of at least 580. If you have a credit score between 500 and 579, you can still get approved, but you'll need a 10 percent down payment.

What is better than a FHA loan? ›

A conventional loan is often better if you have good or excellent credit because your mortgage rate and PMI costs will go down. But an FHA loan can be perfect if your credit score is in the high-500s or low-600s. For lower-credit borrowers, FHA is often the cheaper option.

What is better, a conventional loan or FHA? ›

With both types of loans, the lender sets the interest rate, determined primarily by your credit score. FHA loans sometimes have more favorable interest rates than conventional loans — but the difference is often offset by the greater number of fees, including the MIP charges, that they have.

Which loan has the highest risk? ›

Types Of High-Risk Loans
  • Payday Loans. Payday loans are short-term loans typically limited to smaller amounts up to $500. ...
  • Title Loans. Car title loans are secured by your vehicle's title, which the lender keeps as collateral until you can pay off the loan. ...
  • Pawn Shop Loans. ...
  • High-Risk Personal Loans.
Mar 22, 2024

Do underwriters look at spending habits? ›

Bank statements play a crucial role, revealing your financial habits, income, and spending, impacting mortgage approval. Underwriters check the last two months (or up to 12-24 for self-employed) for savings for down payment, affordability of monthly payments, and cash reserves.

Will I lose my deposit if I am denied a mortgage? ›

If the buyer fails to get approval for a mortgage, the buyer can terminate the contract and remain entitled to their earnest money deposit, basically holding the bank responsible for the failed process.

What not to do during underwriting? ›

Tip #1: Don't Apply For Any New Credit Lines During Underwriting. Any major financial changes and spending can cause problems during the underwriting process. New lines of credit or loans can interrupt this process. Also, avoid making any purchases that may decrease your assets.

What is the lowest acceptable credit score to buy a house? ›

For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500. Read on to learn about credit scores and how they affect your ability to make a home purchase.

What's the lowest FICO Score to buy a house? ›

Credit score needed to buy a house by mortgage type
Loan TypeMinimum Credit Score
Conventional loans620
FHA loans500 (with 10% down payment); 580 (with 3.5% down payment)
USDA loans640
VA loansThe VA has no minimum limit, but lenders generally like to see at least 620
1 more row
Jan 10, 2024

What is the minimum credit score for a FHA loan in Arizona? ›

FHA minimum credit score allowed with 10% down is 500. FHA minimum credit score allowed with only 3.5% down is 580. The minimum credit score to use down payment assistance combined with an FHA loan in Arizona is 640.

Can I buy a house with 580 credit score? ›

You can get a mortgage with a credit score as low as 620, 580 or even 500, depending on the type of loan. Some mortgage lenders offer bad credit loans with more flexible qualifying requirements but higher costs. Others offer free credit counseling to help you improve your score before applying for a loan.

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