Chapter 4: Mortgage Types, Choose Your Weapon

Chapter 4: Mortgage Types, Choose Your Weapon

A Scene from Real Life

Two buyers, same income, same price. One took 6.5% fixed. The other took 5.5% adjustable “because it’s cheaper.” Three years later the second hit 8% and the payment jumped $400. The difference: understanding the loan type before signing.

Conventional Loans

Standard bank loans. For: 620+ credit (680+ better). Pros: lowest long-term cost, PMI auto-cancels at 20% equity. Where: any bank or broker — compare 3+ offers.

FHA Loans: The First-Timer’s Friend

Government-backed. For: first-timers, 580+ credit. Pros: 3.5% down. Cons: MIP insurance for the life of the loan + 1.75% upfront fee. Where: FHA-approved lenders (HUD.gov).

VA and USDA

VA: veterans — 0% down, no PMI. USDA: rural areas — 0% down. Check eligibility.sc.egov.usda.gov.

Fixed or Adjustable?

Fixed: never changes. ~6-7% in 2026 for 30 years. ARM: starts low, then moves. Only for those selling within 5-7 years with a clear exit plan.

Pre-Approval

Pre-qualification: verbal estimate, worthless. Pre-approval: real check with a formal letter — what sellers need. Valid 60-90 days.

Action Steps

• Pick your type: 680+ = conventional. Average credit = FHA.
• Get 3+ Loan Estimates.
• Ask: “What is my total 5-year cost?”
• Get pre-approved before serious hunting.

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