What Is a Mortgage?

What Are the Types of Mortgages?

Mortgage loans come in different types. The one you choose affects your upfront costs, how much you can borrow, and what you’ll pay over time.

Most fall into three categories:

• Conventional: Standard home loans that follow set rules from major housing agencies. 
• Government: Loans backed by the government to help specific groups of buyers.
• Affordable and special programs: Loans and assistance programs designed for certain buyers or communities.

Each type fits different situations. If you qualify for more than one, compare offers and total costs before you choose.

Conventional loans

Conventional loans are the most common type of mortgage. They’re not backed by a government agency. These often cost less over time, but they might be harder to qualify for.

Common types of conventional loans include:

• Fixed-rate mortgage: This loan keeps the same interest rate from start to finish, which may make budgeting easier. These loans may start with a slightly higher rate than adjustable options.
• Adjustable-rate mortgage (ARM): This loan starts with a lower rate for a set period, then can change over time based on market conditions. Since payments can change, costs are less predictable. These might cost less at first but more over time.

Government loans

Government-backed loans help buyers who need more flexible rules. Common types include:

• FHA loans: The Federal Housing Administration insures loans that allow low down payments, sometimes as low as 3.5%. Lenders may accept lower credit scores than most conventional loans. You may need mortgage insurance for the life of the loan, and it might cost more over time.
• VA loans: These are for eligible veterans, servicemembers and surviving spouses. They often don’t require a down payment or monthly mortgage insurance. You may have an upfront fee instead. There’s extra protection if you have trouble making payments.

Affordable and special programs

Special programs can help make homeownership more affordable for certain people. These often work alongside regular mortgage loans.

Types of special programs may include:

• State and local housing programs: States, cities, counties or nonprofits offer these. They often help first-time homebuyers or low- to middle-income families with down payments or closing costs. Some support teachers, firefighters or other public service workers..

• Community-based credit programs: Some lenders offer these. They help low- to middle-income borrowers in specific communities. The terms and rules vary by program.
• Medical professionals’ programs: Medical professionals have unique financial needs that require thoughtful solutions. Some lenders offer mortgages that are designed to align with medical professionals’ existing financial circumstances and goals.

What’s Mortgage Insurance?

Mortgage insurance is extra protection for the lender, if the borrower stops making mortgage payments and defaults on the loan. Typically, some type of mortgage insurance is required if you buy a home with a small down payment (usually less than 20% of the home’s purchase price).

You can pay mortgage insurance as part of your monthly payment, sometimes as a fee at closing or both. If you fall behind on your mortgage, this insurance helps the lender recover their money. But it doesn’t protect you from losing your home.

The cost and type of mortgage insurance depend on your loan:

• Conventional loans: These may use private mortgage insurance (PMI). You might be able to cancel it later.
• FHA loans: These require mortgage insurance for all borrowers.
• VA loans: These don’t have monthly mortgage insurance. You’ll have an upfront fee instead.

What Happens If I Miss a Mortgage Payment?

After you miss a payment, your mortgage company (called a servicer) must try to contact you within about a month to talk about what’s going on. You won’t lose your house after one missed payment. But it’s important to act quickly and contact your servicer.

Within about 45 days, the servicer will send you a letter explaining help options that may be available. When you make payments late, you’ll get late fees. Late payments can have a negative impact on your credit score. For full details on when late fees are charged, and how much they are each time, contact your loan servicer or check your loan agreement.

If you let your servicer know you’re struggling and apply for help early, they’ll review options to prevent foreclosure. Foreclosure is the process where a lender takes back real estate because the borrower didn’t make their payments. The lender may sell the home to recover the owed money.

Options available to help you avoid foreclosure include:

• Forbearance: This pauses or lowers your payments for a short time.
• Loan modification: This changes your loan to make payments more affordable.
• Repayment plans: These, along with other options, may help.

By law, a servicer can’t start foreclosure until you’re more than 120 days late. Even then, submitting an application for financial hardship or hardship relief assistance may pause foreclosure while they review your options. That exact name and type of help available may vary by lender and the options available to you. That’s why the sooner you ask for help, the more options you may have. KeyBank's restrictions may apply.