When it comes to paying for a home, the word “mortgage” doesn’t have to be scary. You have a number of financing options available. Here are the main ones you should know about:

Conventional Mortgage
A conventional mortgage is a loan to purchase property made between a lending institution and a borrower without a third-party participant, such as the VA or FHA. Most types of conventional loans are paid off in equal monthly payments spread over 15, 25, or 30 years. The interest rate stays the same for the life of the loan.

Terms of a conventional loan vary among lenders, but basically a loan can be obtained with a down payment as low as 5% of the purchase price. When the down payment is less than 20%, it is often necessary for the loan to have private mortgage insurance (PMI) to protect the lender.

VA Loan
Qualified veterans can take out loans up $417,000, with no down payment, and the Veteran’s Administration will guarantee a portion of the loan. Lenders who originate these loans therefore feel comfortable with their risk.

FHA Loan
With an FHA loan, the Federal Housing Authority insures federally qualified lenders against any default payments by the borrower. While the down payment can be as low as 2.25% of the purchase price, the FHA charges the borrower an up-front mortgage insurance premium (MIP) fee. Prepaid interest, called points, may also be charged by the lender.

Lender Funded Programs
Many lenders today are willing to assist buyers with closing costs. In exchange for paying a higher interest rate, a lender may forgo its normal charges plus pay other closing costs on behalf of the buyer. These plans vary widely, so study them carefully.

Balloon Mortgage
A balloon mortgage is a loan that offers a low interest rate for a set period of time, typically 5, 7, or 10 years. At the end of that time period, the balance is due in full to the lender or refinanced by the borrower.