FLOWCHART // Which Mortgage Should You Choose? (2024)

How should you choose a mortgage?

Ten years ago, it was tough to get a mortgage. Lenders were stingy and guidelines were tight. Few loans were approved and the housing market suffered.

Today, the mortgage market looks different.

Home values have (finally) surpassed last decade’s peak prices, and mortgage lenders are more willing to make loans than during any period this decade.

More than 70% of purchase loans are getting approved right now, according to Ellie Mae, whose mortgage software helps to process more than 3.5 million loan applications annually.

This is the largest approval percentage since such data has been tracked.

But, there’s more to it for today’s buyers than just “Will my mortgage get approved?”. There are more mortgage choices available than during any part of this decade, too.

A proliferation of have helped spur homeownership among long-time renters; and the return of the is making it easier for existing homeowners to “move up” to something bigger.

Not sure which mortgage loan is best for you? This chart should be a help.

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What are your mortgage options?

The mortgage market is expanding. Mortgage lenders are offering new products for the first time in a decade; and, it’s getting easier to find low and no down payment home loans.

However, it’s not always clear which loan is best for your needs. For example, just because you qualify for an FHA loan, should you use one?

Or, if you’re eligible for a but you plan to make a downpayment of 10 percent, should you still use the USDA loan for your purchase?

How to choose a mortgage: It’s not rocket surgery

When you break it down, choosing a mortgage isn’t that hard. Simply follow the steps in the flowchart below.

The graphic uses three specific loan traits as a starting point — (1) Down payment Amount, (2) Loan Size and (3) Credit Score — then follows-up with specific questions to help you find your “optimal” mortgage loan program.

In addition to identifying conventional loan opportunities via Fannie Mae and Freddie Mac, the flowchart identifies loan possibilities via the Federal Housing Administration (FHA), via jumbo mortgage lenders, and via niche mortgage programs including the USDA Rural Housing loan, the Department of Veterans Affairs VA loan, and the Fannie Mae Conventional 97 program.

Some of the questions asked include :

  • What is your local loan limit?
  • Are you borrowing more than your local loan limit?
  • Do you plan to make a downpayment of 20% or more?
  • Do you plan to make a downpayment of 5% of less?

Depending on your answers to the above questions, the flowchart might recommend a conforming loan with private mortgage insurance (PMI); or a jumbo mortgage that allows for loan sizes in excess of your local loan limits; or some different program which may be more suitable.

Other factors

Your loan choice may also be affected by where you live.

Buyers in less-densely populated areas may find the USDA Rural Housing program to be their best fit. Note that 97% of the United States is “USDA-eligible” and the USDA mortgage allows for 100% financing.

Furthermore, buyers may be routed to specific loan program depending on whether their downpayment is a gift from family, or is sourced from their own funds.

Once you’ve found a suitable loan program, pump your numbers into a mortgage payment calculator to determine your expected mortgage payment (and make sure you’re using accurate mortgage rates).

When you know your expected monthly payment, you can better budget for a home — whether you’re buying today, next month, or next year.

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To help spread good information, we’ve made the above infographic “embeddable”.

Using the code below, you can paste the image into your websites, your blogs, and, your favorite social networks (e.g.; Facebook, Instagram, Pinterest); and, also, into your digital newsletters.

To embed the infographic, choose the image width which suits you best, copy the code using CTRL-C, then paste the code as-is to your site.

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What Are Today’s Mortgage Rates?

Mortgage guidelines are loosening and it’s getting easier to get approved for a mortgage. Furthermore, with mortgage rates low, purchasing power is extended. It’s an excellent time to consider homeownership and the purchase of a new home.

Take a look at today’s real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Time to make a move? Let us find the right mortgage for you
FLOWCHART // Which Mortgage Should You Choose? (2024)

FAQs

How do you know what type of mortgage to get? ›

Types of home loans
  1. Conventional loan: Best for borrowers with good credit scores.
  2. Jumbo loan: Best for borrowers with good credit looking to buy a more expensive home.
  3. Government-backed loan: Best for borrowers with lower credit scores and minimal cash for a down payment.
Feb 9, 2024

Which type of mortgage should you choose if you want a predictable payment? ›

Fixed-rate mortgages are much more popular with borrowers than adjustable-rate mortgages because they're more predictable. With a fixed-rate mortgage, you know your mortgage payment will stay the same throughout the life of your loan.

Is 50% of take home pay too much for mortgage? ›

Key takeaways. The traditional rule of thumb is that no more than 28% of your monthly gross income or 25% of your net income should go to your mortgage payment.

What is the best mortgage to use? ›

Take a look at your finances.

Borrowers with fair credit and little savings could consider a government-backed loan, while those with very good credit and a low debt-to-income ratio may get better rates through a conventional loan.

Is it better to go variable or fixed mortgage? ›

Fixing your mortgage for a set period means that you can ensure a large degree of financial stability. But going with a variable rate or tracker mortgage can mean your monthly outgoings may drop when interest rates come down. Read our guide to find out which is best for you.

What is the best type of mortgage when interest rates are high? ›

With a “shared appreciation mortgage,” the lender is your partner. The lender lowers the mortgage interest rate by as much as two percentage points. In exchange, at some future date, the homeowner must pay the lender a specified percentage of the home's increase in value since the purchase.

Should I choose ARM or fixed? ›

Choosing an adjustable-rate mortgage over a fixed-rate mortgage could be beneficial for several reasons. ARMs often begin with rates that are lower than those of fixed-rate loans, so the initial lower payments can allow buyers to dedicate more of their budget to the home's purchase price.

Should I get a fixed-rate or ARM? ›

ARMs are easier to qualify for than fixed-rate loans, but you can get 30-year loan terms for both. An ARM might be better for you if you plan on staying in your home for a short period of time, interest rates are high or you want to use the savings in interest rate to pay down the principal on your loan.

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.

Can I afford a 300k house on a 60k salary? ›

An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.

How much house can I afford if I make $70,000 a year? ›

Generally, it's recommended to spend between 25% to 33% of your gross monthly income on housing. For a $70,000 salary, this translates to a monthly mortgage payment of approximately $1,450 to $2,000. However, the exact amount can vary based on your personal circ*mstances and the type of loan you choose.

What house can I afford on 200k a year? ›

There are a ton of variables, and these are just loose guidelines. That said, if you make $200,000 a year, it means you can likely afford a home between $400,000 and $500,000.

Who is the #1 mortgage lender in America? ›

1. Rocket Mortgage. Rocket Mortgage -- formally Quicken Loans -- has been the largest mortgage lender by number of originations for years. In 2022, Rocket Mortgage originated 464,363 mortgages worth $127.6 billion, giving it a 5.5% share of the market by origination.

Who has the cheapest mortgage rates right now? ›

Best USDA mortgage rates
  • Home Point Financial, 4.19%
  • Freedom Mortgage, 4.21%
  • Flagstar Bank, 4.28%
  • Caliber Home Loans, 4.46%
  • U.S. Bank, 4.54%
  • AmeriHome Mortgage Company, 4.61%
  • Pennymac, 4.67%
  • NewRez, 4.68%
Jul 21, 2023

What type of home loan does Dave Ramsey recommend? ›

A: Dave Ramsey recommends a 15-year, fixed-rate conventional loan.

What are the 4 types of qualified mortgages? ›

There are four types of QMs – General, Temporary, Small Creditor, and Balloon-Payment. Of the four types of QMs, two types – General and Temporary QMs – can be originated by all creditors. The other two types – Small Creditor and Balloon-Payment QMs – can only be originated by small creditors.

What are the three main types of mortgages? ›

When purchasing a house, there are three main types of mortgages to choose from: fixed-rate, conventional, and standard adjustable rate. All have different benefits and shortcomings that assist various homebuyer profiles.

How do I know if my mortgage is FHA or conventional? ›

Look at your mortgage paperwork: Your mortgage documents should indicate if your loan is an FHA-backed loan. Look for language that includes "FHA-insured," "FHA-guaranteed," or "HUD/FHA." Check with your lender: You can contact your mortgage lender and ask them if your loan is backed by the FHA.

What is the most common mortgage type? ›

Conventional mortgages are the most common type of mortgage. That said, conventional loans may have different requirements for a borrower's minimum credit score and debt-to-income (DTI) ratio than other loan options.

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