Course Title: The Power of Ownership™: Easy Steps to Smart Homebuying

STEP 5: Finding the Right Loan Type

  1. COURSE OVERVIEW

Choosing the right loan type is one of the most critical decisions in the homebuying journey. Not all loans are created equal—and not every loan fits every buyer. Step 5 of The Power of Ownership™ course helps participants understand the various types of mortgage loans, their eligibility requirements, advantages, drawbacks, and suitability based on a buyer’s financial situation and long-term goals.

This step will empower participants to make informed choices between FHA, Conventional, USDA, and VA loans. It will cover fixed versus adjustable-rate mortgages, discuss mortgage insurance, and teach how to match one’s personal financial profile with the right mortgage product. Participants will also learn how to evaluate trade-offs between monthly payment, down payment, and loan costs.

By demystifying loan options, Step 5 helps participants avoid predatory loan products, gain negotiating power, and save tens of thousands of dollars over the life of their loan.

  1. LEARNING OBJECTIVES

By the end of this lesson, participants will:

  • Understand the four main mortgage loan types and their eligibility requirements.
  • Distinguish between fixed-rate and adjustable-rate mortgages (ARMs).
  • Identify which loan options are most suitable based on income, credit score, and down payment.
  • Learn the pros and cons of each mortgage type.
  • Understand how mortgage insurance works and when it’s required.
  • Compare multiple loan offers using interest rates, APRs, and loan terms.

III. SCRIPTURAL FOUNDATION

Proverbs 24:3-4 (NIV) – “By wisdom a house is built, and through understanding it is established; through knowledge its rooms are filled with rare and beautiful treasures.”

Selecting the right loan isn’t just financial—it’s foundational. A wise choice at this step supports lasting homeownership, while a rushed or misaligned decision can cause hardship. Biblical wisdom teaches us to seek understanding before building.

  1. INSPIRATIONAL QUOTE

“The loan you choose today shapes the life you live tomorrow.” — Coach Greb

  1. KEY MORTGAGE TYPES
  2. FHA Loans

Federal Housing Administration loans are government-backed and designed for first-time and lower-income buyers. They are accessible, forgiving on credit, and require lower down payments.

Key Features:

  • Minimum credit score: 580
  • Minimum down payment: 3.5%
  • Mortgage insurance (MIP) required for the life of the loan
  • Good for buyers with limited savings or lower scores
  1. Conventional Loans

These are the most common types of home loans and are not backed by the government. They often require higher credit and down payment but offer more flexibility and lower long-term costs.

Key Features:

  • Minimum credit score: 620
  • Down payment: 3% to 20%
  • PMI required if under 20% down (can be removed later)
  • Better rates for strong credit buyers
  1. VA Loans

Backed by the Department of Veterans Affairs, these are available only to eligible military service members and veterans.

Key Features:

  • No down payment
  • No mortgage insurance
  • Must meet VA eligibility and obtain COE (Certificate of Eligibility)
  • Often best rates available
  1. USDA Loans

Offered for homes in rural and some suburban areas, USDA loans promote homeownership in underserved communities.

Key Features:

  • No down payment
  • Low interest rates
  • Property must be in eligible area
  • Income caps apply
  1. FIXED VS. ADJUSTABLE RATE MORTGAGES (ARMs)

Fixed-Rate Mortgage (FRM):

  • Interest rate stays the same for the life of the loan
  • Predictable monthly payments
  • Best for long-term ownership

Adjustable-Rate Mortgage (ARM):

  • Lower initial rate, adjusts after introductory period
  • Can increase or decrease with market
  • Best for short-term ownership or early payoff

VII. COMPARING LOANS: KEY TERMS

Term

Definition

Interest Rate

The cost of borrowing, expressed annually

APR (Annual Percentage Rate)

Includes interest rate plus fees, gives truer cost

PMI/MIP

Private or Mortgage Insurance; protects lender if you default

Loan Term

Length of time to repay (typically 15 or 30 years)

VIII. CASE STUDY: Marcus and Evelyn’s Mortgage Match

Marcus and Evelyn had a combined income of $85,000. Marcus had a 640 score and Evelyn had a 710. They were debating between FHA and Conventional loans.

Their credit union offered:

  • FHA loan: 3.5% down, 6.2% interest, MIP for 30 years
  • Conventional loan: 5% down, 5.8% interest, PMI until 78% LTV

They chose the Conventional loan. It required slightly more upfront but would save $18,000 in mortgage insurance and $11,000 in interest over 30 years. With proper budgeting, they secured the home and lowered their lifetime cost.

  1. DO’S AND DON’TS

✅ DO:

  • Shop at least three lenders and compare offers
  • Ask about hidden fees and total APR
  • Match loan type to your time in the home and financial profile
  • Understand when and why mortgage insurance applies

❌ DON’T:

  • Choose a loan just because of low monthly payments
  • Overlook closing costs and lender fees
  • Assume all lenders offer the same terms
  • Forget to ask about down payment assistance options
  1. PRACTICE EXERCISES
  2. Loan Comparison Chart

Loan Type

Credit Score

Down Payment

Rate

Insurance

Best For

FHA

580+

3.5%

____

MIP

Low savings

Conventional

620+

5%-20%

____

PMI

Strong credit

VA

620+

0%

____

None

Veterans

USDA

640+

0%

____

MIP

Rural buyers
  1. Rate Comparison Exercise
  • Lender A: 6.2%, APR 6.7%
  • Lender B: 5.9%, APR 6.2%
  • Lender C: 6.1%, APR 6.5%
  • Which loan is the best deal over time?
  1. Reflection Prompt
  • What are my top 3 loan priorities—low monthly payment, lowest cost over time, smallest down payment?
  • Based on my credit and savings, which loan fits me best?
  1. TEACHER’S MANUAL SNAPSHOT

Objectives:

  • Explain loan options clearly with pros and cons
  • Help learners match a loan to their financial life
  • Practice comparing rates and APR with group activities

Tools Needed:

  • Loan comparison worksheets
  • Interest vs. APR explainer chart
  • Real lender printouts (optional)

Suggested Activities:

  • Group loan matching game
  • Roleplay: Mortgage advisor and buyer consultation
  • Loan math challenge: Comparing long-term cost

XII. PARTICIPANT GUIDE SUMMARY

Included Tools:

  • Loan Type Selector
  • Mortgage Rate Tracker
  • Monthly Cost Estimator

Assignment This Week:

  • Check your credit and estimate what loan types you may qualify for
  • Contact one lender for sample rate comparison
  • Fill out your personal loan match profile

XIII. CONCLUSION

The right loan is not just a ticket to buy—it’s the foundation of a wise purchase. The wrong loan can cost you peace, equity, and financial freedom. By understanding how mortgage products work, comparing carefully, and applying biblical stewardship, you are empowered to choose the best path.

Scripture Reminder: “Plans fail for lack of counsel, but with many advisers they succeed.” — Proverbs 15:22

Let wise counsel and careful comparison guide your loan choice—and protect your financial future.