A Beginner's Guide to Home Loans
06/04/2025
A Beginner’s Guide to Home Loans
Whether you are planning to buy your first house or your third, understanding all the different types of home loans can be confusing. There’s a lot of jargon, misunderstandings, and categories that go into finding the best home loan for you. Here is a beginner’s guide to understanding the different types of loans, loan terms, and interest rate types to get you started.
One of the first questions your real estate agent or lender may ask you is what type of loan you are interested in. The three main categories of home loans are conventional, government, and special program loans. Choosing the right type of loan for your situation can affect your down payment, total cost of the loan, and how much you can borrow. Let’s look more in depth at each of these.
Conventional Loan – A conventional loan is just as it sounds and will be what most home buyers take out. These loans are not part of any government program. Conforming conventional loans have maximum loan amounts set by the government and are backed by Fannie Mae or Freddie Mac. Some conventional loans require private mortgage insurance (typically if your down payment is less than 20%).
Government – Government loans are mortgage loans insured or guaranteed by the federal government. These include FHA (Federal Housing Administration), VA (US Department of Veterans Affairs, and USDA (United States Department of Agriculture) loans. Each one has specific requirements for eligibility.
Special Programs – State and local agencies or private lenders may also offer special mortgage loan programs to make homeownership more attainable. These are also only available to qualifying individuals. Local lenders may be able to help you see if you qualify for any programs in your area.
Next, is loan terms. This simply refers to the length of your loan repayment. Typically, home loans have a term of 15 or 30 years. Depending on what you choose, it will affect your monthly payment (principal and interest), your interest rate, and how much interest is accrued over the life of the loan. The shorter the term of the loan, the higher your monthly payment will be, but your total cost will be lower because the interest accrual period is shorter. Longer term home loans have lower monthly payments but can have higher interest rates and will cost more over the life of the loan. Your lender can help you look at what might be best for you.
Last is probably the most important category: interest rate type. The two types of interest rates are fixed-rate mortgage and adjustable-rate mortgage (ARM). With a fixed-rate mortgage, your interest rate and monthly principal and interest payment will stay the same over the course of your loan. Adjustable-rate loans can fluctuate depending on interest rate increases and decreases based on market trends. This means your interest rate will likely go up or down after the introductory period. Therefore, your monthly payment may change every time. If you would like to view our 5/1 ARM Special visit us at https://www.thesavingsbankohio.bank/product/adjustable-rate-mortgage.html for the most recent rates and information.
Buying a home is a big commitment, and it can feel overwhelming. Our mortgage team at The Savings Bank is here for any questions you have! Simply come in or call us at 1-800-582-2265.
Sources:
https://www.consumerfinance.gov/owning-a-home/special-loan-programs/
https://www.consumerfinance.gov/owning-a-home/conventional-loans/
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