How to Determine Which Home Mortgage Option Is Best For You?

Buying a home is one of those significant steps in one's lifetime. Whether a first-time home buyer or a repeat buyer, you need a mortgage loan to finance your home. 

Deciding which type of mortgage you want takes time and effort. There is so much jargon to decode, checking the mortgage calculator countless times, and comparing the qualifying credit score. 

Are you wondering which home mortgage option is best for you?

In this post, you will learn the types of loans available and understand when a particular mortgage loan is the best option. 

Let's dive in!

1. What Are the Different Mortgage Loans 

Before applying for a mortgage, you need to know which types of mortgages exist. 

Let's classify mortgage loans into the following categories to help you understand what to expect: 

Conventional Mortgage

Conventional mortgages, also known as "conforming loans," are from private lenders or the federal companies Freddie Mac or Fannie Mae. Conventional loans come with different qualifying credit scores depending on the mortgage lender. 

Some lenders offer borrowers conventional mortgages based on income. To qualify for a traditional mortgage loan, you must have a good credit score. Otherwise, you can look for government-backed mortgage loans.


Government-Backed Mortgage Loan: FHA, VA, or USDA Loan

The government-backed home loans are less strict than conventional home loan requirements. 

However, the federal government does not issue these loans directly. You still go through private lenders to get a government-backed mortgage. 

The typical government-backed mortgages include: 

  • Federal Housing Administration (FHA Loan): A government-backed loan for low to moderate-income families. The FHA home loan requires a lower minimum down payment and is available to applicants with lower credit scores. 
  • Veteran Affairs Loans (VA Loans): VA loans are available through a program established by the Department of Veteran Affairs. The loans are available to veterans, service members, and their surviving spouses. VA loans require no down payment, mortgage insurance, or prepayment penalties. 
  • USDA Home Loan: The U.S. Department of Agriculture introduced the USDA home loan to help eligible rural homebuyers attain homeownership status. The USDA home loan is a zero-down payment mortgage and comes with attractive mortgage requirements compared to conventional home loans. Applicants must show proof of minimum income for a home loan and have a good credit history. 
  • Jumbo Loan: A jumbo loan is a type of financing that exceeds the limits set by the Federal Housing Finance Agency and cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Approval for a jumbo loan requires a stellar credit score and a meager debt-to-income ratio. 

2. Figure How Much You Can Afford

Before determining which mortgage is the best option, use a mortgage calculator to figure out how much you can afford. 

Lenders with a qualifying credit score are most likely to be optimistic about how much house they can afford. 

Remember, mortgage lenders will give you a maximum amount. However, they expect you to pay back within the agreed timelines. Failure to pay a mortgage can lead to foreclosure. Therefore, stick to an amount you can afford to repay comfortably. 

3. Consider the Mortgage Loan Length

Mortgage lenders offer varying loan lengths. There are 30, 15, and 10-year mortgage loans. Suppose your budget allows for a more significant payment of a shorter-length loan. In that case, you may substantially reduce the total interest expense over the life of the mortgage. 

Therefore, when choosing which mortgage loan is best for you, consider whether the lender offers reduced interest expense over the home loan's lifetime. 

4. Understand How Mortgage Interest Works

The interest rate is the price you pay to borrow the money for your home. Mortgage interest rates change a lot, so it helps to understand what interest you will pay for every loan borrowed. 

A mortgage calculator helps you estimate what the monthly mortgage payments look like. Mortgage lenders may offer different mortgage rates, depending on your credit score, loan term, and the down payment. 

In addition, some loans feature a fixed-rate plan, while others have an adjustable rate. 

The fixed-rate mortgage locks in your interest rate for the entire life of your loan. Therefore, you pay the same interest rate throughout the loan's lifetime. 

For an adjustable-rate mortgage, the rate changes periodically depending on multiple factors. Consider taking the mortgage with adjustable rates if you plan to live in your home for only a few years. If you are ready to settle down, you may want to consider a fixed-rate mortgage. 


There is no correct answer to the question, "Which type of mortgage is best for me?"

The quick answer is that it depends! 

No two homebuyers have the same mortgage requirements. Some are concerned about long-term home loans, while others worry about qualifying credit scores. 

Visit MortgageWorks for assistance choosing the best home loan based on your unique specifications. 

MortgageWorks is a full-service mortgage company based in Palm Springs, CA, serving all of California. Whether buying a home or refinancing, we help you realize your dream of homeownership. 

* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.