Millennials Guide: Choosing the Right Mortgage

As you prepare to buy a home, you are probably trapped in the excitement of a kaleidoscope of options: top fixer or turnkey? Small condo in the heart of town or extended house in the suburbs? Traditional or contemporary? Brick or stucco? Fixed Rate Mortgage or Adjustable Rate?

OK, so maybe that last one is not exactly exhilarating. As boring as it may be, however, it is a question that you are going to have to ask yourself - and respond - at some point during the home buying process. What type of mortgage should you choose? Believe it or not, your decision could make or break your home investment (see Getting a Mortgage in Your 20s).

The good news: You are not alone in your quest to get the perfect mortgage. For the second consecutive year, Millennials represented the largest group of home buyers in the United States (32%), according to a March 2015 study by the National Association of Realtors. As members of this generation continue to flood the real estate market, they are instigating some major changes in the mortgage industry. A 2014 Pew Research Center report found that Millennium Mortgage borrowers are demanding a technology-based home loan application process, fast online service, and faster mortgage closing.

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But before closing in your new home, you will have to do some mortgage tasks. Here is information on the major types of mortgages to help you make this critical decision.

FHA Loans
Housing loans offered by the Federal Housing Administration (FHA), known as FHA loans, are designed for home buyers who do not have a lot of money to put toward a down payment - which is why lending the FHA are so appealing to Milllennials.

With an FHA loan, however, you are only required to make a 3% down payment, all of which may come from a gift or a donation. That means it is possible to secure an FHA loan without putting down a single dollar of your own money. Also, the underwriting requirements are not as strict with these loans. In other words, if your credit history is not exactly perfect, an FHA loan could be your best bet.