Are you shopping for a mortgage? Confused yet? There are different types of mortgage loans that you can choose from, and figuring out which is best for you can be confusing. As you consider these different options, you will be able to discuss the loan programs with your lender and this should help you feel more comfortable making the best decision for your current situation.
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FHA loans have been making homeownership accessible for decades. This type of Mortgage Loan is built for borrowers with lower credit scores. FHA insurance protects mortgage lenders, allowing them to offer loans with below-average interest rates, easier credit requirements, and low-down payments (starting at just 3.5%).
FHA loans are especially popular with first-time, lower-income, and/or lower-credit home buyers, thanks to their flexibility and low rates. There’s a lot to love about the FHA home loan. Here are some of the biggest benefits.
- Lower down payment: FHA allows a 3.5% down payment
- The FHA loan can allow 100% gift funds for the down payment & closing costs.
- FHA loans allow higher debt-to-income ratios
- Typically FHA loans accept lower credit scores
- FHA also allows extended loan sizes
Downsides to an FHA loan:
- PMI never goes away
- Many Condos Not approved
- Must be Owner Occupied
- Loan Limits based on region
When most people think of a mortgage, they’re thinking of a conventional loan. Conventional loans are originated and serviced by private mortgage lenders like banks, credit unions, and other financial institutions, many of which also offer government-insured mortgage loans. In general, conventional loans don't have some of the same perks as government-insured loans, such as low credit score requirements and no down payment or mortgage insurance.
Thanks to their wide availability and low rates, conventional loans are the most popular mortgage in the U.S.
Conventional loans have no special eligibility requirements, and pretty much all lenders offer them. You could qualify with just 3% down and a 620 credit score.
- Low Down Payment as low as 3%
- No PMI with 20% Down
- Can be used for 2nd homes & Investment properties
- Higher Rates for lower credit borrowers
- Income Limits
- Tougher Credit Guidelines
- Reserve Requirements – Need money in the bank after down payment and closing costs.
For those who qualify, the VA loan program may be the best possible mortgage. Out there today.
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at very affordable cost. The VA loan is a $0 down mortgage option available to Veterans, Service Members, and select military spouses. VA loans are issued by private lenders, such as a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).
The VA home loan was created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit. This historic benefit program has been helping veterans, active duty military members, and their families purchase or refinance a home.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
- ZERO DOWN PAYMENT
- NO PMI
- DEBT TO INCOME RATIO HIGHER
- NO PREPAYMENT PENALTY
- SURVIVING SPOUSE BENEFITS
- NO MAX LOAN AMOUNTS
- GOVERNMENT GUARANTEE
- VA FUNDING FEE FLEXIBILITY
- VA FUNDING FEE
- CAN BE USED AGAIN BUT MUST SELL EXISTING LOAN TO OBTAIN NEW LOAN
- MUST USE SPOUSES CREDIT
The rule of thumb is that if you have good credit (680+) and a large down payment (5% or more), a conventional loan is often best. If you have lower credit and/or a smaller down payment, a government loan can help.
However, those are not universal rules. The best type of mortgage for you will depend on your budget, your credit, and your home buying goals.
To help guide you in the right direction, here’s a broad overview of conventional vs. government loans, and who they’re best for:
- Conventional loans — Privately-backed loans that tend to be most affordable for people with credit scores above 680 and down payments of 5% or more.
- FHA loans — FHA loans are backed by the Federal Housing Administration. They’re typically best for people with credit between 580-680 and a down payment of at least 3.5%
- VA loans — VA loans are almost always best for qualified veterans and military members. They let you buy a house with 0% down, exceptionally low-interest rates, and no monthly mortgage insurance
- For more information regarding loans, qualifications, requirements, and which loan is for you click here.
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