A new home may be one of the biggest purchases you’ll make in your life. Before you begin shopping for the right home to buy you’ll need to explore Mortgage options if you’re planning to finance the purchase.
Not all home loans are the same, though. So, doing your research before moving forward can help you select the most suitable option for your financial situation and possibly keep more money in your pocket. Plus, you’ll know what to expect, in terms of guidelines, when you apply.

Types of mortgages
1. Conventional loan – Best for borrowers with a good credit score
2. Jumbo loan – Best for borrowers with excellent credit looking to buy an expensive home
3. Government-insured loan – Best for borrowers who have lower credit scores and minimal cash for a down payment
4. Fixed-rate mortgage – Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
5. Adjustable-rate mortgage – Best for borrowers who aren’t planning to stay in the home for an extended period, would prefer lower payments in the short-term and are comfortable with possibly having to pay more in the future


1. Conventional loan
Conventional loans are loans which are not backed by the federal government, come in two forms: conforming and non-conforming.
* Conforming Loans – As the name implies, a conforming loan “conforms” to the set of standards put in place by the Federal Housing Finance Agency (FHFA), which includes credit, debt and loan size.
* Non-conforming loans – These loans do not meet FHFA standards. Instead, they cater to borrowers looking to purchase more-expensive homes or individuals with unusual credit profiles

Who should get a conventional loan?
If you have a strong credit score and can afford to make a sizable down payment, a Conventional mortgage is probably your best pick. The 30-year, fixed-rate conventional mortgage is the most popular choice for homebuyers.

30-year fixed-rate mortgage
The 30-year fixed-rate mortgage is a home loan with an interest rate that’s set for the entire 30-year term.

Most popular home loan

* Your interest rate never changes

* Lower monthly payment than with shorter-term loans.

Best for: Home buyers who want the lower monthly payment that comes from stretching out repayment over a long time. The fixed rate makes the payment predictable. A 30-year fixed offers flexibility to repay the loan faster by adding to monthly payments.


2. Jumbo loan
Jumbo Mortgages are home loan products that fall outside FHFA borrowing limits. Jumbo loans are more common in higher-cost areas such as Los Angeles, San Francisco, New York City and the state of Hawaii, where home prices are often on the higher end.

Who should get a jumbo loan?
If you’re looking to finance a home with a selling price exceeding the latest conforming loan limits a jumbo loan is likely your best route.

3. Government-insured loan (NHF LOAN)
AIMS AND OBJECTIVES
* Mobilization of funds for the provision of affordable residential houses for Nigerians.
*   Commercial and Merchant Banks to invest 10% of their loans and advances portfolio.
*   Insurance Companies are mandated to invest 20% of non-life and 40% of life funds in the housing sector with 50% of these directly in the funds.
*   Financial contributions of the Federal Government.

BENEFITS
*   Housing loan of up to 90% of the cost of the house.
*   Interest on loans remains fixed throughout the life of the mortgage at 6% p.a.
*   Long period of repayment of up to 30 years.
*   Contributions can serve as additional old age security.
*   Up to N15 million can be borrowed.
*   Refunds with 2% interest on retirement.
*   Loan repayment is about the same as a typical monthly rent.
*   Every contributor has: a lifetime registration number, a passbook for personal recording of contributions and the account statement.

WHO CAN BENEFITS FROM THIS SCHEME?

The NHF scheme is for Nigerians in all sectors of the economy, particularly those within the low and medium-income levels who cannot afford commercial housing loans e.g. civil servants, traders, artisans, commercial drivers, etc. Any intending beneficiary must be a registered contributor and up to date with his/her contributions.

4. Fixed-rate mortgage
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders allow borrowers to pick any term between eight and 30 years.

Who should get a fixed-rate mortgage?
If you are planning to stay in your home for at least five to seven years, and want to avoid the potential for changes to your monthly payments, a fixed-rate mortgage is right for you.

5. Adjustable-rate mortgage (ARM)
Unlike the stability of fixed-rate loans, adjustable rate mortgages (ARMs) have interest rates that fluctuates with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term. For example, you might see a 7-year/6-month ARM, which means that your rate will remain the same for the first seven years and will adjust every six months after that initial period. If you consider an ARM, it’s essential to read the fine print to know how much your rate can increase and how much you could wind up paying after the introductory period expires.

Who should get an ARM?
If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home.
Other types of home loans
In addition to these common kinds of mortgages, there are other types you may find when shopping around for a loan:
* Construction loans – If you want to build a home, a construction loan can be a good choice. You can decide whether to get a separate construction loan for the project and a separate mortgage to pay it off. A construction-to-permanent loan, which merges construction costs and financing into a single loan product, is also an option.Both options typically require a higher down payment and proof that you can afford the monthly payments.

* Interest-only mortgages – With an interest-only mortgage, the borrower makes interest-only payments for a set period – usually between five and seven years- followed by payments for both principal and interest You won’t build equity as quickly with an interest-only mortgage, though, since you’re initially only paying interest for a set period. Still, these loans are best for those who know they can sell or refinance, or for those who can reasonably expect to afford the higher monthly payment later.

* Piggyback loans – A piggyback loan, also referred to as an 80/10/10 loan, actually involves two loans: one for 80 percent of the home price and another for 10 percent. You’ll make a down payment for the remaining 10 percent.These loan products are designed to help the borrower avoid paying for mortgage insurance. While eliminating those PMI payments might sound appealing, keep in mind that piggyback loans require two sets of closing costs, and you’ll also accrue interest on two loans. Crunch the numbers to find out if you’re really saving enough money to justify this unconventional arrangement.

* Balloon mortgages – Another type of home loan you might come across is a balloon mortgage, which requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. When the loan term ends, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared or your credit situation deteriorates.

Next steps
Now that you have an idea of the right kind of loan for your home purchase, it’s time to find the right mortgage lender to make it happen. Every lender is different, and it’s important to compare and search for the best type of mortgage that fits you.