Understanding Your Mortgage Options

Conventional loans are the most common type of mortgage and are not insured or guaranteed by a government agency.

They can be a great option for many buyers because they offer flexibility in down payment, property type, and loan structure.

One of the biggest misconceptions about conventional financing is that you need a 20% down payment.

You don't.

Some conventional loan programs allow qualified buyers to purchase a primary residence with as little as 3% down.

Putting 20% down does have an important advantage: you can generally avoid private mortgage insurance (PMI).

Private mortgage insurance protects the lender if the borrower defaults on the loan.

With conventional financing, PMI is typically required when you put less than 20% down. The cost varies based on factors such as your credit profile, down payment, and loan.

Unlike FHA mortgage insurance, conventional PMI can generally be removed once certain requirements are met and you've built enough equity in the home.

Conventional financing can be especially attractive for buyers with strong credit and stable finances.

It can also offer:

• Down payment options starting as low as 3% for some qualified buyers
• No upfront government funding fee
• The ability to eventually eliminate PMI when applicable
• Flexibility for primary residences, second homes, and investment properties
• Generally fewer property-condition requirements than some government-backed programs

Conventional isn't automatically better than FHA, VA, USDA, or another financing option.

The right comparison includes your interest rate, mortgage insurance, down payment, closing costs, monthly payment, and how long you expect to own the home.

A good lender can compare the available options side by side and help you determine which loan makes the most financial sense for your situation.

FHA loans are mortgages insured by the Federal Housing Administration and are designed to make homeownership accessible to a wider range of buyers.

They're especially popular with first-time buyers, but you do not have to be a first-time homebuyer to use an FHA loan.

Qualified buyers can purchase a home with as little as 3.5% down with an FHA loan.

FHA financing can also be more flexible when it comes to credit history and debt-to-income ratios than some conventional loan options, making it worth exploring for buyers who may not qualify for the conventional terms they want.

FHA loans require mortgage insurance.

This generally includes an upfront mortgage insurance premium (UFMIP) as well as an annual mortgage insurance premium (MIP) that's typically paid as part of your monthly mortgage payment.

Unlike conventional PMI, FHA mortgage insurance doesn't necessarily disappear simply because you reach 20% equity. How long you're required to pay it depends on factors including your original loan-to-value ratio and loan term.

Because FHA insures the mortgage, the home must meet certain minimum property standards.

An FHA appraisal considers the home's value as well as certain health, safety, and property-condition requirements.

That doesn't mean an FHA-financed home has to be perfect, but significant property issues may need to be addressed before the loan can close.

FHA financing may be worth considering if you:

• Have limited funds available for a down payment
• Have a credit profile that makes conventional financing less attractive
• Want more flexible qualification guidelines
• Are comparing FHA against a low-down-payment conventional loan

The important thing is to compare the total cost, not simply the down payment.

A knowledgeable lender can show you how FHA and conventional financing compare based on your actual numbers, including the rate, mortgage insurance, cash needed at closing, and monthly payment.

VA loans are backed by the U.S. Department of Veterans Affairs and are available to eligible Veterans, active-duty service members, certain National Guard and Reserve members, and some surviving spouses.

For those who qualify, a VA loan can be one of the most powerful mortgage options available.

VA financing can offer:

• No down payment in many cases
• No monthly private mortgage insurance (PMI)
• Competitive interest rates
• Limits on certain closing costs
• Flexible credit guidelines
• A benefit that can potentially be used more than once

Most VA borrowers are required to pay a one-time VA funding fee, although some Veterans and other eligible borrowers are exempt. The funding fee can generally be financed into the loan.

A VA-financed home must meet the VA's Minimum Property Requirements.

As part of the financing process, a VA-approved appraiser determines the home's reasonable value and evaluates whether the property meets those requirements.

The VA appraisal is not a home inspection, and I still strongly recommend having a professional home inspection performed.

There is much more to understand about VA financing, including eligibility, entitlement, funding-fee exemptions, appraisals, seller concessions, using your benefit again, and VA loan assumptions.

Want to learn more about VA financing? Visit the dedicated VA Loans page on my website for a more detailed look at how VA loans work and what to expect when buying a home.

USDA loans are backed by the U.S. Department of Agriculture and are designed to help eligible buyers purchase homes in qualifying rural and suburban areas.

One of their biggest advantages is the potential for 100% financing with no down payment required.

Unlike most mortgage programs, USDA eligibility depends on both the buyer and the property.

The home must be located in a USDA-eligible area, and the buyer's household income must fall within the applicable limits for that location and household size.

Don't let the word “rural” fool you.

A property doesn't necessarily have to be miles outside of town or surrounded by farmland to qualify. Some suburban and smaller communities may fall within USDA-eligible areas, so it's worth checking a property's eligibility rather than assuming it won't qualify.

USDA loans don't require traditional PMI, but they do have their own mortgage-insurance-type costs.

USDA Guaranteed Loans currently include an upfront guarantee fee and an annual fee that's generally collected as part of the monthly mortgage payment.

The upfront fee can typically be financed into the loan rather than paid entirely out of pocket at closing.

USDA financing may be worth exploring if:

• You want to purchase with little or no money down
• The home is located in an eligible area
• Your household meets USDA income requirements
• You plan to use the property as your primary residence
• The overall payment and costs compare favorably with your other financing options

USDA eligibility can vary from one location to another, so don't automatically rule out a home because you don't consider the area “rural.”

Your lender can help determine whether both you and the property meet the program requirements before you move forward.

Jumbo loans are designed for buyers who need to borrow more than the conforming loan limit established for conventional mortgages.

For 2026, the conforming loan limit for a one-unit property in most of the country is $832,750. A mortgage above the applicable conforming limit will generally require jumbo or another type of non-conforming financing.

Because jumbo loans involve larger loan amounts and aren't eligible for purchase by Fannie Mae or Freddie Mac under standard conforming guidelines, lenders generally apply their own underwriting requirements.

Depending on the lender and loan program, buyers may encounter:

• Higher credit-score requirements
• Larger down-payment requirements
• Lower allowable debt-to-income ratios
• Greater cash-reserve requirements
• More extensive income and asset documentation

Requirements can vary considerably from one lender to another.

Not always.

While some jumbo programs require substantial down payments, others may offer lower down-payment options to well-qualified borrowers.

This is an area where shopping lenders can be particularly important because jumbo loan programs, rates, and qualification requirements can vary significantly.

If you're purchasing a higher-priced home, your lender can help determine whether your financing falls within conventional conforming limits or requires a jumbo loan.

Just like any other mortgage, the goal should be to compare the complete picture — including the interest rate, down payment, closing costs, monthly payment, cash reserves, and loan terms — rather than focusing on one number alone.

Once you've considered the type of mortgage you're using, there's another decision you may encounter: fixed-rate or adjustable-rate financing.

The difference comes down to what happens to your interest rate over time.

With a fixed-rate mortgage, your interest rate remains the same for the entire life of the loan.

That means the principal and interest portion of your mortgage payment won't change because interest rates rise or fall.

Your total monthly housing payment can still change over time as property taxes, homeowners insurance, or other expenses change.

Fixed-rate mortgages are popular because they provide predictability. You know what your principal and interest payment will be for as long as you have the loan.

An adjustable-rate mortgage typically begins with a fixed interest rate for an initial period. After that period ends, the rate can adjust periodically based on the terms of the loan.

For example, with a 5/6 ARM, the initial rate is fixed for five years and can then adjust every six months.

ARMs may sometimes offer a lower introductory interest rate than comparable fixed-rate mortgages, but you're accepting the possibility that your rate and payment could increase later.

ARMs include limits, known as caps, on how much the interest rate can change at certain times and over the life of the loan.

Neither is automatically better.

A fixed-rate mortgage may make sense if you value predictable payments or expect to own the home for a long time.

An ARM may be worth considering if the initial terms are attractive and you have a reason to believe you may sell, refinance, or pay off the loan before or not long after the adjustable period begins.

The important thing is to understand what could happen to your payment if the rate adjusts rather than choosing an ARM based solely on a lower introductory rate.

Your lender can show you both options and explain the potential costs and risks based on your specific situation.

Your down payment and your closing costs are two different expenses.

Understanding the difference is important when figuring out how much money you'll actually need to purchase a home.

The down payment is the portion of the home's purchase price that you pay upfront rather than finance.

For example, if you purchase a $300,000 home with 5% down, your down payment would be $15,000.

How much you'll need depends on your loan program and financial situation. Some conventional programs allow as little as 3% down, FHA can allow 3.5%, and eligible VA and USDA buyers may be able to purchase with no down payment.

Closing costs are the expenses associated with obtaining the mortgage and completing the real estate transaction.

Depending on the transaction, they can include things such as:

• Lender fees
• Appraisal
• Title and settlement charges
• Recording fees
• Prepaid homeowners insurance
• Property tax and insurance escrow deposits
• Discount points, if applicable
• Other loan and transaction-related expenses

The amount varies based on the loan, lender, property, purchase price, taxes, insurance, and other factors.

Your total cash needed at closing can include your:

Down payment + closing costs + prepaid expenses, minus any applicable credits, deposits, or assistance.

And that number can look very different from one buyer to another.

Seller-paid closing costs, lender credits, down payment assistance programs, and certain loan programs can potentially reduce the amount you need to bring to closing.

Before we begin seriously looking at homes, I want you to understand more than just how much you're approved to borrow.

You should also have a realistic estimate from your lender of how much cash you'll need to complete the purchase.

That way, when we find the right house, we can structure the offer with both your monthly payment and your available cash in mind.

When comparing mortgage offers, you'll usually see both an interest rate and an APR.

They aren't the same thing.

Your interest rate is the percentage the lender charges you for borrowing money.

It directly affects the principal and interest portion of your monthly mortgage payment.

A lower interest rate generally means a lower monthly principal and interest payment, but the rate alone doesn't tell you the full cost of the loan.

APR stands for Annual Percentage Rate.

APR is designed to provide a broader picture of the cost of borrowing because it incorporates the interest rate along with certain additional loan costs and fees.

That's why the APR will often be higher than the advertised interest rate.

Imagine two lenders advertise the exact same interest rate.

One may charge considerably more in points or lender fees to obtain that rate.

If you compare only the interest rates, the loans may look identical. Looking at the APR and the actual loan costs can help reveal the difference.

The lowest advertised interest rate isn't automatically the best mortgage.

When comparing loan offers, look at the complete picture:

• Interest rate
• APR
• Points
• Lender fees
• Closing costs
• Monthly payment
• Cash required at closing
• Loan terms

Your lender should be able to explain exactly what you're paying and why.

The goal isn't simply to find the lowest rate. It's to understand the overall cost and structure of the loan you're choosing.

Before you start seriously shopping for a home, it's important to understand how much you can comfortably afford and what a lender may be willing to lend you.

That's where prequalification and preapproval come in.

A prequalification is generally an early estimate of how much you may be able to borrow based on financial information you provide to a lender.

It can be useful when you're just beginning to explore your options, but it may not involve the same level of financial review as a preapproval.

A preapproval typically involves a more detailed review of your finances.

Depending on the lender, this may include reviewing your:

• Income and employment
• Credit
• Debts
• Assets and available funds
• Financial documentation

If you meet the lender's requirements, you'll generally receive a preapproval letter showing the amount you're qualified to borrow, subject to the lender's conditions and final underwriting.

A good preapproval gives us more than a maximum purchase price.

It helps us understand your estimated monthly payment, cash needed at closing, loan options, and the price range that actually makes sense for you.

It also puts us in a much better position when we find the right home.

When we submit an offer, a preapproval letter shows the seller that you've already taken important steps toward securing your financing.

This is important.

A lender may approve you for more than you're comfortable spending every month.

Before we decide on a price range, I want you to know what the actual estimated monthly payment looks like — including principal, interest, taxes, insurance, mortgage insurance when applicable, and HOA dues when applicable.

We'll build the home search around a payment and price range you're comfortable with, not simply the maximum amount a lender says you can borrow.

Your lender and your real estate agent have different jobs, but when you're buying a home, those two sides of the transaction need to work together.

I've been helping buyers and sellers throughout the Memphis area since 2014, and part of my job is helping you understand how your financing affects the decisions we make throughout the home-buying process.

The type of mortgage you choose can influence which homes make sense, how we structure your offer, whether we ask the seller to contribute toward closing costs, how the appraisal is handled, and ultimately how much cash you'll need to complete the purchase.

I'll work closely with your lender so we understand those numbers before we're making important decisions.

Just because you're approved for a certain purchase price doesn't mean that's what you should spend.

We'll consider the monthly payment you're comfortable with, your available cash, the condition of the home, potential expenses after closing, and your long-term plans.

And when we're evaluating a particular house, I'll help you understand how all of those pieces fit together.

My job isn't to talk you into buying a house.

If I think we're overpaying, I'll tell you. If I see something that concerns me, we'll talk about it. If I think we need more information before making a decision, we'll get it.

I want you to understand what you're doing and feel confident about the decisions you're making.

A successful home purchase involves a lot of moving pieces.

I'll communicate with you, your lender, the listing agent, inspectors, closing professionals, and the other people involved to help keep the real estate side of the transaction moving while your lender handles the mortgage.

You don't have to understand every detail of the process before you get started.

You just need the right people helping you through it.

Whether you're ready to get preapproved or you're simply trying to understand what buying a home might look like for you, I'd be happy to help you figure out the next step.