Finance

How to Choose the Best Mortgage

Like houses, mortgage loans come in a variety of configurations, each designed to meet the differing needs of home buyers.

Kallee Feuz Apr 4, 2018

Craftsman or colonial? Move-in ready or fixer upper?

There are many decisions to make when shopping for a new place to call home. And just as important as the home you choose is how you choose to finance that home. After all, the mortgage loan you select will impact your family finances for years to come.

Like houses, mortgage loans come in a variety of configurations, each designed to meet the differing needs of home buyers. Here are some mortgage options to consider when shopping for a new home:

Conventional vs. Government-Backed Mortgage Loan

Conventional home loans. Conventional home loans, which are issued and backed by private lending institutions, come with no shortage of options. You can get a conventional loan with a fixed-interest rate or an adjustable-interest rate (more on that below) and with a term length of anywhere from 10-30 years.

Because conventional loans are not backed by the government, they require a higher credit score, lower debt-to-income ratio, and a larger down payment (generally 5-20 percent of the purchase price of the home) than other loan types.

If you can meet the credit and down payment criteria, a conventional loan* may be your best bet in terms of selection, overall costs and monthly payments. Most importantly, a conventional loan lets you avoid costly private mortgage insurance (PMI) if you put down 20 percent or more.

Government-backed home loans (FHA, VA, and USDA loans). Like conventional loans, government-backed loans are issued by private lending institutions: banks, credit unions and other mortgage lenders. But unlike conventional loans, government-backed loans are guaranteed or insured by government agencies such as the Veterans Administration (VA), U.S. Department of Agriculture (USDA) and Federal Housing Administration (FHA).

This guarantee allows lenders to relax credit standards and reduce down payment requirements for government-backed mortgages like the popular FHA home loan. You can get an FHA mortgage loan with as little as 3.5 percent down. And while the required mortgage insurance premiums will increase your monthly payments, the FHA’s low out-of-pocket cost makes it a great option for people looking to get into a home without a large upfront deposit.

With various down payment possibilities and repayment terms to choose from, an FHA home loan like the Zions Bank FHA mortgage loan* can make homeownership affordable. 

Fixed-Rate vs. Adjustable-Rate Mortgage Loan

Fixed-rate home loans. Thanks to their straight-forward and steady nature, fixed-rate loans remain the most common mortgage type. With a fixed-rate loan, your principal and interest payments remain constant though the life of the loan regardless of what happens in the broader market. A fixed-rate mortgage adds an element of predictability to your financial future so you can plan accordingly. These loans are a particularly good choice when interest rates are low and when you expect to keep the loan for a long time.

Consider a Zions Bank fixed-rate mortgage loan* to lock in a competitive interest rate for the life of your home loan.

Adjustable-rate home loans. An adjustable-rate mortgage, or ARM loan, gives you a set interest rate for an introductory period (often 3, 5, 7 or 10 years). After the promotional period is over, your rate is adjusted according to market conditions at regular intervals (often every year).

While ARM loans keep initial costs low, they come with a degree of uncertainty. Once the introductory period ends, you may benefit from falling rates without having to refinance; or you could get hit with higher monthly payments if interest rates rise. (ARM loans do typically come with caps controlling how much costs can increase.)

Adjustable-rate mortgages, or ARM loans, can be attractive to homebuyers because their initial cost is generally lower than that of comparable fixed-rate mortgages. So if you don’t plan to hold onto your home for long, an adjustable-rate home loan like the Zions Bank ARM loan* might make good sense.

An ARM loan could also be a smart selection if interest rates are high, or if you don’t qualify for a low interest rate on a fixed-rate loan and want to work toward building credit and refinancing in the future.

To find out more about Zions Bank’s mortgage loans, or for specific down payment information, contact a mortgage loan officer. Zions Bank takes pride in serving local communities and making loan decisions locally.

You can find additional home loan resources at the Zions Bank Homeowner’s Café.

*Zions Bank loans are subject to credit approval. Terms and conditions apply. See a banker for details. Equal Housing Lender. NMLS #467014.

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