What type of home loan should you apply for?

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If you’ve decided it’s time to shop for a new home, you’ll need to start shopping for a home loan, as well.

Choosing the right home loan is a lot like choosing the right house. You’ll want to look at a number of options and find one that fits into your financial plan while still getting you the best possible deal. That can be a little tricky with so many home loans to choose from, so here’s a breakdown of the most common options.

Fixed-rate loan

With a traditional fixed-rate mortgage, the amount of principal and interest paid may vary slightly from month to month, but the interest rate remains the same over the life of the loan, which lets you calculate and budget for a long-term house payment. Fixed-rate mortgages basically protect you from sudden changes in interest rates and are relatively straight-forward.

Be aware, however, that higher interest rates can make monthly payment options on a fixed-rate mortgage less appealing. If you can’t bring the typical 20 percent down payment to closing, you may find you’re unable to qualify for an affordable fixed-rate mortgage.

Adjustable- or flexible-rate mortgage

Adjustable, or flexible-rate mortgages, come with a set period of time during which the interest rate is fixed. After that, the rate is determined by an economic indicator. They are easier to qualify for than fixed-rate mortgages, and can help you get into the home you want – even if you don’t have a 20 percent down payment. Plus, once you’ve built some equity and savings, you can refinance your loan and obtain a better fixed-rate mortgage.

Keep in mind, though, that the variability of an ARM makes it a higher risk for homebuyers who may end up staying past the fixed-rate period. Be sure you’ve considered your five-year plan before signing on the dotted line.

FHA Loan

If you don’t have a perfect credit score and require a lower-than-usual down payment, FHA loans are a good option. The loan is backed by the FHA, part of the U.S. Department of Housing and Urban Development (HUD), so you can afford to put less money down up front.

VA Loan

If you’re a veteran, active duty military/reservist or National Guard member, you’re likely eligible for a VA loan. The U.S. Department of Veterans Affairs (VA) backs the home loan, so you could get a lower down payment, lower closing costs and additional loan protections.

Plus, there’s no down payment required as long as sale price doesn’t exceed appraised value, and you don’t need private mortgage insurance.


For those looking to purchase a more rural home, USDA loans can help ensure you have to finances you need to build the life you want. There are certain income and location limits, but unconventional credit can be accepted when you apply. You’ll find several different loan programs within the USDA loan umbrella that fit several different financial lifestyles, so be sure to learn more about each program and what restrictions they have.

First-time home buyer loan

A first-time home buyer loan can help ease the financial burden of purchasing a house by offering lower down payments, electronic mortgage options, and no limitations on income. For example, the first-time homebuyer program offered by Mountain America Credit Union allows buyers to put as little as $1,000 down on their first home.

Pro-tip: A mortgage calculator can help you decide which of the following loans best suits you and your family’s financial needs. Check out Mountain America mortgage rates for the latest financing options.

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