How to Buy a Home with a Mortgage

When you get started shopping for a home for the first time, it can bring about a mix of feelings — excitement, stress, curiosity and more.

When you want to buy a home, you may need to get familiar with mortgages. Approximately 44 percent of U.S. consumers have a mortgage, according to Experian. 

To dive in a little further, the median monthly mortgage payment was $1,609 in 2019, according to the U.S. Census Bureau in 2019. From January to March 2020, the average noncommercial conventional 30-year mortgage loan amount was $178,400, according to the Federal Housing Finance Agency (FHFA).

Ready to get one of your own? Let’s dive in. 

Types of Mortgages

First, let’s consider the types of mortgage you can get. Don’t worry, your lender will give you an idea of what you can qualify for and offer you some pros and cons — you don’t have to walk into the bank and announce the type of mortgage you’d like to get. 

Conventional Mortgage

The federal government does not insure conventional mortgages, which fall into two specific categories: conforming and non-conforming loans.

  • Conforming loan: The loan amount falls within maximum limits set by the FHFA. 
  • Nonconforming loan: The loan amount doesn’t meet the expectations for guidelines set by the FHFA. A jumbo loan, explained in the next section, represents one example of a nonconforming loan.

Jumbo Mortgage

A nonconforming but conventional mortgage, jumbo loans cover homes that exceed federal loan limits. In other words, for a single-family home in the U.S., the conforming loan limit sits at $548,250. However, in high-cost living places like New York City or Los Angeles, the limit hits a ceiling of $822,375. 

Government-Backed Mortgage

“Government-backed mortgage” makes it sound like the government issues mortgages, doesn’t it? However, the government does not issue mortgages. Instead, it helps people get mortgages using the Federal Housing Administration for FHA loans, the U.S. Department of Agriculture for USDA loans and the U.S. Department of Veterans Affairs (VA loans). Read a little bit more about both:

  • FHA loans: If you don’t have great credit, you may want to consider getting a FHA loan. You need a credit score of at least 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment. You can put 10 percent down if you have a credit score of 500, however. You do have to pay a mortgage premium for the life of the loan when you decide to take on a FHA loan.
  • USDA loans: If you want to buy a home in a rural area or suburban area, you may want to look into a USDA loan. You must meet certain income limits in a USDA-eligible area.
  • VA loans: U.S. military members (active and retired) and their families can tap into VA loans. You must pay a funding fee if you choose to get a VA loan. You can roll this fee into the loan itself or pay it upfront.

Fixed-Rate Mortgage

Mortgages with fixed interest rates stay the same throughout the life of the loan — you know what your payments will amount to every month. The most common fixed-rate loan terms include 15, 20 and 30 years, though you can also find different loan terms for fixed-rate mortgages. Note that you’ll usually pay more in interest for a fixed-rate mortgage. If you plan to stay in your home for up to 10 years, a fixed-rate mortgage may make the most sense for your needs.

Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages (ARMs) have interest rates that go up and down, depending on the market. Some stay the same for a set number of years, then change to a variable interest rate for the remainder of the term. ARMs may cap this interest rate up to a certain amount. You may not know what your ARM will go up to, so you have to feel comfortable with a certain amount of risk. If you don’t think you can swing the maximum mortgage payments, you might not want to get an ARM.

Disclosure

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Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.